Budget'11: Tax experts ask to nip norms, boost disclosures

Budget 2011 may be a great time for the government to re-energise the tax settlement commission. That's the word from tax experts, who say that facilitating greater disclosures may help the government to fight against black money stashed abroad reports, CNBC-TV18's Ashwin Mohan reports.

Are tax pacts effective? Exchange of information agreements seem to be a hot favourite for the Indian government, which is fighting against undisclosed money stashed abroad. However, tax experts are a little skptical about how effective these will be in bringing to light money that has already been hidden. Sudhir Kapadia, Tax Markets Leader, Ernst & Young, feels that the tax information exchange pacts more likely than not will require other countries to disclose information prospectively. "Going forward it will be very unusual for the other country to demand information from another country." Reviewing agreements with tax havens is not enough, they say. Nor is an outright amnesty scheme the best option. They point to the need to coax voluntary disclosures by reviewing existing domestic tax policy and mechanisms. Tax lawyer HP Ranina, says, "Currently, the law says that if you have tax evaded income, the penalty can go upto 300% of the tax evaded. So one way to do it would be to reduce the penalty, considerably, make it attractive for people to make a disclosure and of course give them immunity from prosecution." Tax experts add that developed nations have already used such schemes to good effect. "Countries like the United States, the United Kingdom and a few others as well have specifically targeted since the last two years, disclosure of offshore accounts held by their residents and citizens," Kapadia states. This demand for alternative provisions gathers weight, given the fact that the settlement commission has not been effective in tackling tax evasion. And, budget 2011 may be an ideal platform for the Finance Minister to push the envelope.