Lok Sabha clears Black Money Bill

After passing the Constitution Amendment Bill for goods and services tax (GST) in the lower House last week, the NDA government on Monday successfully pushed through the Undisclosed Foreign Income and Assets Bill, dealing with retrieval of black money hoarded abroad.

In a bid to ensure its easier and swifter clearance in the Rajya Sabha, the government has decided to keep the Bill outside the Income Tax (IT) Act and is treating it as Money Bill.

This will hasten its passage as it will now have to be sent to the Rajya Sabha only once. The second time it goes to the upper House it gets passed.

The Bill, which was introduced in the Parliament in March, is an attempt by the government to get back the black money from foreign shores by giving offenders an opportunity to come clean within a stipulated period. It does not deal with the domestic black money.

Explaining its nuances, finance minister Arun Jailtley told the Lok Sabha the bill provides those with illegal money abroad a compliance window to declare their assets. If they came clean during this, he said, they would pay a tax rate of 30% along with a 30% additional penalty.

Beyond this window, he said, the tax defaulters would be levied a 120% tax and criminally prosecuted. The Bill has a provision under which the defaulters could be punished with a jail term of 3-10 years.

Once again, just as in the case of the GST Bill, the Lok Speaker declined the opposition's demand for it to be sent to the Standing Committee for a review.

Riaz Thingna, partner, Walker Chandoik & Co LLP TRS, believes skipping the Standing Committee was not a healthy thing as the Bill may not serve its purpose in the "same measure" as it was intended to.

He said it would have been better if it had been sent to the expert panel to avoid incidences such as recent Minimum Alternate Tax (MAT) demand made on foreign portfolio investors (FPIs) by IT the department.

"Of late, regulations have been found wanting on proper draft as its reference to the Standing Committee is being bypassed. This causes lot of confusion due to its unclear draft, leading to litigations and dilution of its implementation (As in the case of the MAT)," he said.

Besides this, Thingna, feels the black money bill also had some serious loopholes that could be manipulated by unscrupulous tax evaders.

"There are some loopholes in it. It requires the beneficial owner of asset to be declared. When you have something like this, it opens the possibility of setting up a trust to avoid the applicability of Act," he said
According to Thingna, the inhibitive high tax rate of 60% during compliance window may not inspire compliance.

"If you want compliance, the tax rate should be attractive enough to bring illegal money into the economy. This is an obvious loophole. Attractive rate is important to increase compliance," he said.

Amarpal Chadha, tax partner, Ernst & Young (EY), however, differed on that. He said since the Bill deals with extracting black money diverted to overseas destinations, it was more about sending a message to those indulging in it to come clean or face the consequence of being prosecuted.

"It (Bill) is a voluntary mechanism for disclosure of illegal assets abroad and not an incentive for improving compliance. It would may yield desired result as those with black money stashed overseas may take it as an opportunity to come clean," he said.

There is no official estimate of the illegal money stashed away overseas, but unofficial assessments reportedly put it somewhere between $466 billion and $1.4 trillion.