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Amnesty scheme could get back black money

Thursday, 10 July 2014 - 6:35am IST | Place: Mumbai | Agency: dna

Legal experts say there can be no roving inquiry by our government on account holders of Indian origin in foreign land

The government has no option but to offer amnesty scheme to get back unaccounted money stashed away abroad in foreign banks as getting accounts details of Indians holding accounts is restricted.

Legal experts say that foreign banks are no way obliged to part with information of their clients unless there has been a breach of law and a communique comes from the government where the bank is based or headquartered.

"But then, there can be no roving inquiry by our government on account holders of Indian origin in foreign land," said a legal expert.

Economists and legal experts have estimated that about a trillion dollar, or Rs 60 lakh crore, in unaccounted money or black money lying in overseas bank accounts.

Most monies stashed away overseas are literally untraceable and in fictitious names. That leaves only a handful of Indian account holders in the list of tax defaulters, say legal experts.

Under the circumstances, most feel that at least Rs 25,000 crore can be brought back into the system if the government is able woo them with a transparent voluntary disclosure scheme.

Knowing the precarious condition of the cash-starved government, it could be one of the options available to the finance ministry.

No sooner the Narendra Modi government assumed office in May, it set up a special investigating team under Justice MB Shah to find ways to bring back the unaccounted money into the system but it does not appear to have made any headway so far.

"There has to be a one-time amnesty scheme attractive enough to make voluntary disclosures. It could be by way of, say a 5% higher tax rate than the existing 33% to 38%," said Keki Mistry, vice chairman and CEO at HDFC. Mistry feels such a scheme should enrich the government coffers and the monies of such account holders should be locked-in with the government through bonds and utilised for infrastructure and housing development projects.

"No doubt, the government is sensitive to the fact and it needs to put systems in place and look at the issue from the tax and foreign exchange regulation perspectives," said Nishant Shah, partner at Economic Laws Practices.

The actual tax revenues – income and corporate – in FY13 was just a little over Rs 5.5 lakh crore. The fiscal deficit for FY14 stood at Rs 5.25 lakh crore while the estimates for FY15 is almost flat at Rs 5.29 lakh crore.

Most agree lower tax levels and introduction of GST would boost growth and reduce the incidence of tax avoidance, hence black money generation.

"India needs low level of taxation, a culture of compliance and curbing the discretionary powers in the hands of tax sleuths," said U R Bhat, managing director at Dalton Capital (India) Advisors.

"The government should incentivise people to pay taxes and also ensure no operator will come to my door and seek taxes under some law or the other. I should have the legal right to do business once taxes are paid. But then many authorities keep harassing," said Pranay Bhatia, partner at BDO India LLP.

Many critics view the amnesty scheme as an ongoing practice for tax evaders and not a permanent solution to stop generation of black money.

"I think black money generation will get arrested only if the tax laws get simplified, there is a stability in policies and predictability in roadmap," said Shubhada Rao, chief economist at YES Bank.

Rao said there should be no fears in the minds of the tax payers of retrospective taxes.

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