Lok Sabha on Monday passed a bill to deal with black money stashed abroad through high monetary penalty and criminal prosecution with the government allaying fears that innocent people could be harassed under the proposed “deterrent” law.
Piloting the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015, Finance Minister Arun Jaitley said there would be short compliance window for persons having undisclosed income abroad to come clean by paying 30 percent tax and 30 percent penalty.
Once the compliance window closes, anyone found having undeclared overseas wealth would be required to pay 30 percent tax, 90 percent penalty and face criminal prosecution, he said while winding up the debate on the bill which was later approved by the House.
For those wanting to come clean, Jaitley said there would be a compliance window in two parts — to declare assets and to pay 30 percent tax and 30 percent penalty.
Citing an example, he said, there could be a two-month window to declare overseas assets and within six months one would have to pay tax and penalty.
Jaitley said the law will help bring black money in the declared economy, improve tax collections and would eventually facilitate lowering of tax rates.
Noting that this bill was specifically to target black money stashed abroad, he said a separate benami bill will soon be brought before Cabinet to tackle domestic black money.
“This law will act as a deterrent...It will act as a deterrent and help us in getting the assets back by people declaring them,” he said, adding the law also had a provision for attachment of equivalent properties in India.
Rejecting the opposition charge that the stringent provisions could result in harassment of innocent people and students, he said, “we don’t want to proceed against trivial violations. But then the big fish must not get away in the garb.
“Let us not fire from the shoulders of these innocent students in order to make sure that no harsh action is taken on the big fish itself.”
On next page: Reactions to the bill
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CNBC-TV18 spoke with BJP leader Subramanian Swamy, along with tax experts TP Ostwal, Sunil Agarwal of AZB and Harish HV of Grant Thornton, to obtain their reactions to the passage of the Black Money Bill.
Q: The Black Money Bill goes through at least the lower house, what are your first thoughts?
Swamy: The present Black Money Bill that has been introduced is basically stricter and harsher punishment for those caught with black money and those who volunteer in amnesty schemes.
However, there is no provision for it or any method by which the black money is going to be apprehended. So, that part is still lacking. This is only once you catch somebody with black money then what punishment should be given to him.
Q: The Finance Minister reiterated again that is not an amnesty scheme; there are no sort of leeway or cuts being allowed. If you want to disclose in that compliance window you will still have to pay tax and you will still have to pay penalty.
Swamy: Even in the amnesty scheme you had to pay a tax; lower tax than if you are caught with it.
Q: But here there are no such sort of let us say incentives being given to get people to voluntarily come up and disclose. So, are you expecting disclosure?
Swamy: I think it is illegal because we had given an assurance in 1997, P Chidambaram was then Finance Minister, that we will never again have an amnesty scheme or anything like it.
Q: Do you think that this bill in its current form, the way it has been passed, it will meet its purpose?
Swamy: It is only a tightening or making harsher punishments for those caught with the black money but the main problem is how to get the black money back, USD 1.5 trillion. For that there is nothing in it.
Q: On that partially at least we heard a reference, once again the Finance Minister talking about information sharing between different countries particularly with Swiss authorities and he again referred to that HSBC list saying that a lot of work is being done and investigations are now proceeding to an advanced stage.
Swamy: I have not seen any results but how to get black money back is the subject of my petition tomorrow being heard by the Supreme Court.
Q: From your point of view how do you think this menace can be tackled at least to some extent? What are your suggestions to the government?
Swamy: There are various ways. One way is the way that the German and the French did which we are saying that we are going to benefit from namely bribe the senior most official of the bank.
The other way is to go to Switzerland with a letter rogatory after registering an FIR and ask them cooperation in the Criminal Matters Act which is passed long time ago and ask for the details of the accounts. We have the names on intelligence basis and the enforcement directed for number of people who have illegal bank accounts.
The third way is the American way which is that tell the banks you give us the list or we put in jail which is what they did with Credit Suisse and Union Bank of Switzerland and they coughed up 5257 names of Americans having illegal bank account.
The fourth way is what Nariman has suggested which is to pass a law in parliament saying that all accounts in the 90 secret banking countries be nationalised, they belong to Indian citizens and if you can prove that it is an honest bank account we will return it back. Otherwise the rest we will appropriate that is based on the UN resolution of 2005.
So, there are well-known methods of doing it and it has been done with Mubarak in Egypt and Gaddafi in Libya and Marcos in Philippines.
Q: I do not know if you could hear, but if you could, do you agree with that view?
Ostwal: Yes, I agree with Mr Swamy because what he said is absolutely correct. It is only tightening provisions, it is not a provision which will facilitate or attract a person to get the money into the country. The problem lies here is that you have tried to address the number of issues through this Black Money Bill by asking people to tax and penalty but there are other consequences which you have not addressed.
For example, you have brought in the offences under the prevention of money laundering (PML) act and if the PML is applied there is no further immunity and the person can also subjected to a prosecution after paying the tax. So, these are the major worries people have on this compliance with the Black Money bill.
If this going to be the major deterrent for people to make a declaration and say the tax is one time opportunity also is given, there is lot of things which needs to be. Because this seems to be, my understanding of this whole bill seems to be, it is drafted by one person without application of mind, the government has pushed the bill. It ought to have been discussed. In such a shorted time, they have drafted the bill.
Q: What is its biggest flaw? You seem to be not very happy with the bill in its current form. What is its biggest flaw?
Ostwal: The biggest flaw is this. The person making the declaration can be put behind the bars.
Q: So it does not offer any protection; it is not an amnesty scheme?
Ostwal: Yes, absolutely. No, it is not an amnesty scheme. Government has said this very clearly. The implications of account of the disclosure of the foreign assets under this provisions will attract the Prevention of Money Laundering Act, 2002, and if that is attracted then that will further be subjected, you will further be subjected to harassment and you could be put behind the bars.
Q: What are your broad brush strokes to begin with?
Harish HV: Clearly it is a problem which needs to be addressed. My view is that we always talk about Blackmoney in the overseas market but there is a lot of Blackmoney within the country which also needs to be addressed. More important we have to look at what can be done to prevent further creation of Blackmoney.
Ultimately if people have done something wrong we have to give some amnesty but they also need to face some consequences. We can’t always say everybody should be given amnesty all the time.
Q: There is no amnesty that is for sure. There will be tax and there will be a penalty of 30 percent which is equivalent to the rate of tax in the compliance window. The compliance window at least on individual, there will be no criminal proceedings that are launched against that individual. Is this going to meet the desired end objective? Will we get willful disclosure at least in the compliance window?
Harish HV: One is the compliance window and the second is what is being taken to push people into the compliance window and that should come through tightening. The government has done some good things for example insisting on TDS for gold purchases, for all other purchases over Rs 1 lakh. So, multiple areas need to be done. The more black money comes into the system, the economic growth rate will get a huge boost.
Q: So the Black Money bill is a reality at least as far as Lok Sabha is concerned; your first thoughts.
Agarwal: I think this is good that the government's efforts towards bringing tax-evaded income back to India in the shape of this, I would say, scheme which is inbuilt in this bill. The government is reaching some of kind of a concrete methodology to unearth the evaded income.
Q: Making the law is great but will the government actually be able to nab the defaulters?
Agarwal: It is possible, I would go by my experience that in a rare instance, 1965 onwards, lot of voluntary disclosure schemes have been announced regularly and they have been meeting with partial or complete success. Of course this time, this bill is very clear to say that this is not a voluntary disclosure scheme.
Here in that scheme if tax is paid, then out of the value of the undisclosed income or asset, 30 percent is the tax and 30 percent is the interest which is mandatory. So, it means, out of the value of 100 as undisclosed income or asset, 60 has to be paid by the taxpayer to go scot-free. The government has been very specific in saying that this is not an amnesty scheme.
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