Making a show of Black Money Bill

During the Budget Session, Parliament passed the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Bill, 2015, paving the way for imposition of tough penalties and jail terms on Indian residents’ unaccounted incomes and wealth holding in foreign locations that have avoided the taxman’s scrutiny.

The bill, it must be noted, is limited in scope, since it applies only to illegal money held or earned abroad, though there is the promise of a separate bill for unaccounted/unreported incomes held in different forms within the country. The 2015 bill legalises the right of the government to impose a 30% tax on undisclosed income or the value of an undisclosed asset held abroad by a resident assessee, starting from assessment year 2016–17 (tax year 2015–16).

If the sum involved has been “earned” or invested in a year prior to the year immediately preceding the assessment year, it would be subject to penalties of up to 90% and a jail term that can go up to 10 years. In sum, as and when undisclosed income from a source is discovered, it would come under the purview of the law irrespective of when in the past that income had been earned and remained undisclosed in a return.

Since only a small fraction of the taxable but unreported income or the assets acquired with it would have been earned or acquired in 2015–16, almost all such undisclosed income would be subject to the maximum penalty and its holders subject to criminal prosecution. Implementing the law, of course, requires identifying undisclosed income stashed or invested in a foreign location. That, as past experience reveals, is neither easy nor rigorously pursued.

In an effort to show that the government is “bringing back black money” held abroad, the new law has an amnesty clause. It provides for a short “compliance window” during which those holding such unreported incomes or assets abroad can declare them and pay the 30% tax and an additional 30% penalty. Since a 120% tax-cum-penalty that would operate once the window is closed is equivalent to confiscation and the imposition of a fine, besides imprisonment, the thrust here is to get holders of black money abroad to exploit the amnesty window.

The benefit being offered to them is that they would lose only 60% of this wealth in return for exemption from confiscation, an implicit 20% penalty and the ignominy and hardship of jail, if discovered. The problem is that little of such incomes and assets have been identified since independence. Hence, despite the law, the process of transferring unreported incomes (often illegally acquired and therefore unreportable) abroad through illegal channels has continued.

Seen against this background, the Black Money Bill seems to be just another headline-grabbing effort at making a show that the NDA government is keeping to its campaign promise of bringing back black money held abroad by Indians (even if it cannot keep the promise of distributing the money to all citizens!). But experience shows that it is not the weakness of the law that results in the accumulation of the black money, but the failure of the monitoring and prosecuting mechanism to prevent the generation of illegal incomes and identify tax evasion even on legally earned incomes. (Agencies)