Voluntary disclosure of income scheme: A workable idea?

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Q: So adding to the revenue in that sense, expanding tax base because all these people who declare the offshore money then become part of tax bill base

A: The morality part is that atleast going forward for instance prosecution provision of the Income tax act are seldom used. My point is that what you have today is a situation where tax planning versus tax avoidance is a big controversy which is fine, it's going on at one level but what is the repercussion for tax fraud, when people don't declare at all and there is a trade established.

Menaka: They are anyways getting away by not declaring and this scheme will bring them into the tax base, offer an initial low rate of tax, Mr Jha how would you respond to this, I mean at various levels. Is it politically feasible? I know it's a big demand by the BJP pre-election. Is it plausible; is it realistic, are we going to collect that much money? And also respond to the fact that for those people who have put money away offshore unaccounted they have also violated (Foreign Exchange Management Act) FEMA. By bringing it back, they come under the purview of FEMA offences. So will they be willing to bring that money back?

Jha: We need to keep in mind the old adage that "The path to hell is paved with good intensions". There have been five such Voluntary Disclosure of Income Scheme (VDIS) schemes since 1951, if we do not factor in the demonetisation of high currency notes that took place in around 1946. None of these schemes have really unearthed any substantial amount of money. The last one in 1997, I think the amount disclosed was around Rs 25,000 crore or so and the tax raised was about Rs 7,500-7,800 crore. But even that was very seriously flawed; it was seriously flawed because a loophole which enabled people to declare jewelleries some of which they didn't even possess at rates which were historical rates, so they got away by paying very low taxes.

The other aspect here is that by doing this you are putting a premium on dishonesty. What about all the honest taxpayers who are paying the taxes.

The third aspect is when the last VDIS was launched in 1997; the government gave an undertaking to the Supreme Court that this would be the last one, so how is one going to basically get around that.

Q: I said this in an earlier also that was that government and this is this government and governments are known to go back on their words, I don't know how the court will treat it but let's assume they do find a noble intention for instance an infrastructure fund that would help them justify this kind of amnesty scheme - do you still think after having listed why this is a bad idea, that this could come up in the Budget?

Jha: If you look at the amnesty scheme or the VDIS scheme launched in 1975, if I recall right it started of by saying, "In order to garner revenues so that the very important schemes of the government could be implemented", so those were very noble ideas and so this is also very similar if you are saying this is for infrastructure.

Apart from the morality of such schemes is the issues that do you really need the money for infrastructure? Today as far as I can make out the problem with deficit in infrastructure is not lack of funds, it is lack of viable projects, and it is lack of implementation.

Q: The point we are trying to make is that this all additional revenue would help at a time like this when we desperately trying to balance the books and infrastructure could be made the noble justification cause for this. But in a nutshell what you are telling me is that you don't expect this budget to come up with any such amnesty scheme?

Jha: I seriously doubt if any such scheme would be tabled.