The worth of the new, stringent law against Indians stashing away unaccounted money in foreign destinations cannot be judged by the quantum of assets disclosed within the compliance window that ended on September 30. Assets worth Rs. 4,147 crore, yielding tax to the tune of Rs.2,488 crore, >were disclosed within the deadline . If one believes that fabulous sums lie in safe havens abroad, untouched by Indian law, the amount may seem woefully inadequate. On the other hand, if one believes that much of the black money resides comfortably in India, and undisclosed income in foreign countries represent only a small fraction of the total, it may seem a significant disclosure. In any case, the figure falls short of the Rs. 6,500 crore cited by Prime Minister Narendra Modi in his Independence Day address. The stage is now set for the provisions of the >Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 to be invoked against defaulters who failed to make use of the compliance window. The true test of the efficacy of the enactment will be two-fold: in its ability to deter any further flight of money to offshore destinations in the belief that tax can be evaded that way, and in the rigour with which investigation and prosecution are pursued against those who still hold assets abroad. Any undisclosed foreign income that is detected will henceforth attract tax at the rate of 30 per cent, a penalty of 90 per cent and a 10-year prison term. With new arrangements in place to share tax-related information among many countries, this will surely have some deterrence value.
However, what ought to be of concern to the public is a fact that Finance Minister Arun Jaitley has also highlighted: the bulk of the >black money is within India . A confidential report by the National Institute of Public Finance and Policy on the true extent of >India’s parallel economy quantified it in 2013 at 75 per cent of GDP. The black economy is powered mainly by the higher education, real estate and mining sectors. The report had spoken of capitation fees contributing Rs. 5,953 crore to the black money component in a particular year, while real estate transactions could have generated Rs. 5,68,879 crore. In recent times, letting money idle in tax havens, which offer safety and confidentiality but not much by way of interest income, is no more the norm. Assets held abroad find their way back to India as investments in business and participatory notes in the market. The real challenge is in having a regulatory regime that promotes tax compliance and income disclosure. Preventing black money accumulation may be more important than even unearthing it.