Sunday, December 4, 2016

Is Mr Modi soft on Blackmoney holders?

Is Mr Modi soft on Blackmoney holders?

The Modi Government had run a Income Declaration Scheme (IDS) for people to declare their black money. The deadline for IDS 30th September. 64,275 people had declared black money under the IDS scheme totaling to Rs. 65,250 crores. The penalty under this scheme was fixed at 45%. So it was expected that the Government will get 29,362.5 crores under this scheme.

This had made the Modi Government tom-tom its success. It was said that this is much bigger than the Voluntary Disclosure of Income Scheme (VDIS) run by the Congress Govt. in 1997 as VDIS had got 33697 crores from 4.72 lakh people. At that time the Government had got tax of 9,729 crore under VDIS.

Though the Modi Government was declaring success vis-à-vis the previous VDIS, one should realise that the size of economy today is way bigger than in 1997 and the present value of 33,697 crore will be way much bigger.

Now, a series of events appear to blow a big hole in the IDS scheme.

First a person from Ahmedabad who was to pay a tax of 13860 crores declared that he didn’t have that money and had declared on behalf of others. However, other people didn’t give him the money to convert, so he can’t pay up. Next, a person in Hyderabad had declared 10,000 crores and it was found that he didn’t have even 1 crore and had just made up this story to get attention to his business.

This has resulted in the the total size of IDS declarations to drop by more than half and even smaller than the VDIS of 1997. It is to be seen how the Modi Government gives a positive spin to this disappointing news.

It should also be noted that last year, the Government had run a similar scheme for foreign blackmoney holders. There were only 644 declarations and only 2,428 crores of tax collection.

Now, the Modi Government has said that if anyone wants to declare their undeclared cash and deposits in the bank accounts then they will have to pay 49.9% tax. So this becomes the third disclosure scheme by Modi Government within a year.

Three voluntary disclosure of income schemes by the Government in such a short period of time is virtually unheard. People will lose their faith in the system and will feel that honest tax payers are being discriminated against. Blackmoney holders will feel that they will always get some more opportunity later and will be willing to take a chance.

This doesn't fit in with the narrative of a strong Government. The Government now appears to be begging before people. Mr Modi and his ministers should think hard why they are repeatedly failing.

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