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Black money: Truth behind FinMin's 'compliance window'

By Arup Roychoudhury
June 24, 2015 10:39 IST
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Clever wordplay does not change the fact that the government is going pretty easy on some tax offenders, says Arup Roychoudhury.

Finance Minister Arun Jaitley is expected to sign off on the notification for the compliance window under the Undisclosed Foreign Income and Assets Act, popularly known as the Black Money Bill, once he returns from his investment drumming trip to the United States.

The compliance window may be in force from the first half of July and is likely to stretch for 3-5 months. This means that during this period, those with undisclosed income and assets abroad can declare these without facing prosecution.

The window will come ahead of the imposition of the stringent Act from assessment year 2016-17. Those keen to avail of the window can declare their foreign assets and income and pay tax and a penalty, each at 30 per cent of the value of the undeclared assets.

There is another word for this window, which the Centre abhors using, and that word is ‘amnesty’. Amnesty for those mostly high net-worth individuals or entities which for years stashed wealth in tax havens or bought assets abroad, and who, essentially, evaded tax. You may not see the word in any official communiqué, but that is exactly what it is.

Let us look at what the compliance window has to offer. Once the person has paid a 30 per cent tax and a 30 per cent penalty, he or she escapes jail term. Also, any declaration made in this window cannot be admissible as evidence under the wealth tax Act, the Foreign Exchange Management Act (Fema), the Companies Act or the Customs Act. Wealth tax shall not be payable on any asset so disclosed.

So unless the money you stashed in Cayman Islands or Luxembourg was gotten through nefarious activities like smuggling, spot fixing and terrorism, among others, you have your jail exit pass. Achche din!

Now let us look at the last prominent amnesty scheme which was actually officially termed as an, well, amnesty scheme. In his 2013-14 budget, the former Finance Minister P Chidambaram announced a scheme wherein service tax defaulters with dues under the assessment period of October 2007-December 2012, could pay their pending dues till June 2014 without any additional penalty or jail term.

It was a popular scheme and is said to have raked in more than Rs 6,000 crore (Rs 60 billion) extra for the exchequer. Chidambaram kept it straight, and named the scheme for what it was. In fact the only major difference between the black money compliance window and the service tax amnesty scheme is that the former has a penalty and the latter does not. That penalty is honestly small change for those who can afford to hang out with Swiss bankers.

As I said, the Narendra Modi government abhors the term ‘amnesty scheme’. In their interactions with journalists, Jaitley, revenue secretary Shaktikanta Das, and other senior finance ministry officials have been at pains to explain how and why the compliance window is not an amnesty scheme. Any reporter who used the A-word was interrupted midway and told categorically that it was a compliance window.

And it is understandable of course. No government would want to be seen as giving a degree of latitude to those who hid wealth in tax havens, especially after the lofty promises about bringing back black money that the Prime Minister made in his election campaign last year. But clever wordplay does not change the fact that the Centre is going pretty easy on some tax offenders.

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