Use carrot and stick to tackle tax evasion

Janak Raj Gupta

In the latest radio broadcast of Mann ki Baat, Prime Minister Narendra Modi warned tax evaders that the government would deal sternly with those who do not disclose their undisclosed income and property before September 30. It was announced in this year’s budget  that tax evaders would be given a one-time opportunity to declare undisclosed income over a four-month window (starting from June) by paying just 45 per cent of hidden income. Modi warned the tax evaders to join the “transparent system” or else face  the grave consequences of the crackdownwhen tax authorities begin investigation of the past-due tax. Earlier, he had exhorted senior income tax officials to bring 10,000 crore households into the tax net. India's tax-GDP ratio is far lower than comparable emerging markets. So is the public spending-GDP ratio. 

After coming to power, the Modi government had offered a 90-day amnesty to black money holders who had stacked their money abroad. Though the tax collected was a paltry sum, this created panic in the minds of hoarders. As a result, funds held by Indians in Swiss Banks, considered to be havens for stashing black money, have fallen drastically in the recent past. 

According to the latest data released by the SNB (Swiss National Bank) on June 30, Indian money in Swiss Banks has dipped by 33 per cent at the end of 2015 compared to last year. A stern warning and assurance of secrecy by the Prime Minister to tax evaders should work wonders. 

The government has promised that confidentiality, valuation and immunity under other the Companies Act, Excise Act and Service Tax laws, etc. would be provided to tax evaders. Besides, the government has also accepted the industry’s request for tax being paid in installments.

The problem of evading tax is not only unlawful but also puts a premium on dishonesty. It shatters the faith of the common man in the dignity of honest labour and abiding by the law. The government, therefore, should keep a strict watch on the usage and sources of generating black money. Real estate and the purchase of precious metals are perhaps the two major sources of generating and usage of black money. 

The government has rightly made the use of PAN card compulsory for buying gold jewellery above Rs 2 lakh. Similarly, the use of PAN or Aadhaar card should be made mandatory in all property transactions. Information should be shared between concerned agencies — central, state and local governments — where financial transactions are involved.

The problem of black money and tax evasion is not new in India. The same holds true for many other countries which have announced tax amnesty schemes from time to time. Recently, the United States in 2009, Australia in 2007 and 2009, Belgium and Germany in 2004, Greece in 2010, Italy in 2009, Portugal in 2005 and 2010, Russia in 2007 and Spain in 2012, have announced tax amnesty programmes. The problem of tax evasion is uniform and different countries should enter into bilateral and multilateral agreements to tackle it. 

Further, Indians are inherently philanthropists and voluntarily may contributefor some social cause like poverty removal, old age care, education and health, etc. Therefore, in the current Income Discloser Scheme tax evaders need to be assured that their contributions will be deposited in specific funds to achieve certain social objectives. For example, voluntary surrender of subsidy by the LPG users in order to extend the use of cooking gas amongst the poor families at no cost under the “Ujjawala Scheme” worked wonders. The subsidy saved from the “Give-it-up” campaign was specifically used for providing new connections to BPL families, ensuring that they replace the use of fuels such as kerosene, coal, fuel-wood and cow-dung, thereby making their lives more comfortable. 

Almost 53 lakh LPG consumers were reported to have given up gas subsidy voluntarily. A similar exercise is going to be adopted by the Indian Railways to reduce the burden of subsidy. 

Last year, the Railways incurred subsidies to the tune of Rs 1,600 crore on account of concessions extended to the various categories of passengers. The maximum amount of subsidy (Rs 1,100 crore) was claimed by senior citizens. 

The Railways is now contemplating  issuing of new forms giving the option to senior citizens to either avail or not the concession. Earlier, senior citizens would automatically get concession upon filling up the age-related information in the form while buying the tickets. Now they would get the option to give up concession. But it needs to be emphasised that to make such schemes successful, those giving up subsidy or concession may be rewarded otherwise. For example, senior citizens giving up concession in railway travel may be personally thanked by the ticket collector or shown some other courtesy or gesture. The better-off sections are more hungry for public recognition than for monetary gains.

 Let not the current move to unearth black money turn into an election stunt as next year as Uttar Pradesh, Uttarakhand, Punjab and Gujarat would go to the polls and this would be a run-up to the 2019 General Election. In order to curb tax evasion in the future, there should be coordination for sharing information at different levels of governance.      

The writer is a former Professor and UGC Emeritus Fellow, Department of Economics, Punjabi University, Patiala.