The income declaration scheme [IDS] announced by finance minister, Arun Jaitely in the Union Budget for 2016-17 and launched on June 1, 2016 with a tenure of 4 months ended on September 30 which witnessed unprecedented action in major collection centers especially in metropolitan cities.
IDS was contemplated in the backdrop of mountain of black money circulating in the economy and the determination of Modi – government to sternly deal with it. There was a great deal of expectation that the scheme would help in flushing out thousands of crores of concealed income and property and bolstering revenue.
The expectations have borne fruit. At a press conference, Jaitrly informed that undisclosed income and property of Rs 65,250 crores has been disclosed. @45% [30% tax plus 15% penalty], this will yield Rs 30,000 crores as additional tax revenue thereby helping the government in meeting its fiscal deficit target.
Under the Voluntary Disclosure Income Scheme [VDIS] brought in 1997 [also under NDA dispensation], disclosures were just about half of this amount at Rs 33,000 crores. The revenue was even smaller at about Rs 10,000 crores [@30%]. The revenue garnered under IDS is three times more.
The success of IDS may have come as a big shock to doomsayers who thought 45% tax on the disclosed income could deter persons from coming forward. Indeed, until August end, they were feeling vindicated as disclosures till then were coming in trickle. But, that was premature as normally, in such schemes, real action is back-loaded as persons take time to let all pros and cons to sink in.
It would be imprudent to view the high tax rate on income disclosed in isolation. Taking a tough stance towards violators [read those who did not pay taxes when these were due], Jaitely had made it abundantly clear that unlike VDIS which was an ‘amnesty’ scheme, IDS was merely an opportunity given to them to lessen their pain when compared to what they would otherwise face [penalty of up to 200% in addition to 30% tax plus 7.5% surcharge and jail up to 7 years].
This was also to ensure that honest tax payers who have been sincerely disclosing their income and paying tax at normal rate, do not feel discriminated against [the VDIS wherein black money mongers got away by paying only 30%, had a created a lot of heart burn among them]. Thus, by levying tax @ 45% on those who were dishonest in the past, finance minister was dangling a stick.
He went on to add, those who have no intent of changing their ways and won’t avail of the opportunity offered under IDS, will be given a body blow. They will not only have to pay double the rate of tax @90% on the concealed income but also face jail up to 7 years. It is this fear juxtaposed with the fact that our prime minister always walks the talk is the key factor behind the tumultuous response.
A couple of times, Modiji himself has issued a veiled but stern warning to persons who do not come clean now, that they will be dealt with a heavy hand after September 30, 2016. He has amply demonstrated this in his dealing with our neighbor [read the ‘surgical strikes’ on September 29/30 as a befitting response to that country continuously exporting terrorists] and would have made reticent tax dodgers feel the heat pushing them to take shelter under the scheme to get away with lesser much punishment.
Another thing very unique to Modi – dispensation is that it never makes hollow pronouncements. These are always backed by full-scale preparations – at the institutional and administrative level – so that its declared intentions can be given practical shape.
In this case, based on information collected from various sources viz., banks, property registration offices and other points where big ticket transactions are done, the finance ministry had compiled a list 9 million persons [without PAN numbers] who had taxable income but had not filed returns. The department had even sent discreet e-mails to alert them that they could be potential targets for assessment and levy of heavy penalties if they don’t come forward.
Indeed, this has worked leading to good response. Going forward, it is hoped that the government will go full blast after all those who have not come clean [this number is huge]. This is necessary not only to bolster its credentials but also ensure that those who have disclosed now [apart from the honest tax payers all along] do not feel short changed. Besides, this follow-up action will unearth far greater amount of black money and almost equivalent amount of tax.
For the future, with a stringent law on black money in place to prevent stashing it abroad to safe haven jurisdictions and a robust and alert machinery in place to keep an eye on evaders, the present government has unquestionably laid the foundation for a substantial increase in disclosures and additional tax mobilization.
The introduction of GST [goods and services tax] from April 1, 2017 will serve as an icing on the cake as this will bring majority of the transactions on department’s radar as anyone with an intent to conceal income to ward off I-T cannot afford to do so. This is because then, he will be outside the GST network thereby preventing him from getting credit for the taxes paid on his purchases. So, he will be forced to do proper billing for every sale and that in turn, will help the taxman to get a correct idea of his/her income.
Finally, it also goes to the credit of the present government that it has plugged yet another loophole leading to generation of black money via governance reforms and switching over to direct benefit transfer [DBT] into the account of beneficiaries under most of its welfare schemes. While, on one hand, this has resulted in better targeting of benefits on the other, it has saved thousand of crores for the exchequer
Team Modi deserves resounding praise for these spectacular achievements.