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Last Updated : Jun 05, 2017 08:22 PM IST | Source: Moneycontrol.com

Why PMGKY failed: High tax rates, IDS success prove to be bugbear

The tax rate under the PMJKY scheme was very high. It was unlikely of anyone to understand why a high tax is to be paid (or if it is fairly levied) and if he would be in a profitable position if he pays the tax.

Pradhan Mantri Garib Kalyan Yojana (PMGKY) — a scheme launched to curb black money transactions and let citizens come clean on unaccounted income — seems to have found no takers. Revenue Secretary Hasmukh Adhia last week said only around Rs 5,000 crore has been declared under the PMGKY.

Sections of the scheme were based the newly-inserted Section 270AA of the Income-Tax Act, which granted immunity from prosecution and penalty if all taxes were duly paid.

“The Rs 5,000 crore declared under PMGKY is mainly on account of two factors,” Revenue Secretary Hasmukh Adhia said last week.

One being, people had already transferred the money to different accounts before the scheme was announced. “Besides, the rates (tax) we had fixed under PMGKY, people found 75 percent of their money blocked,” Adhia added.

"The scheme allowed deposits to be made in the form of cash or in an account with bank or post office or specified entity, with a tax, surcharge, and penalty totaling up to 49.9 percent. Mandatory deposit of 25 per cent of the undisclosed income is to be made in PMGKY. The deposits are interest-free and have a lock-in period of four years,” he added.

As a result, the scheme did not even achieve one-tenth of its Rs 1 lakh crore target.

Other reasons for the failure

The government, in 2016, had anyway launched the Income Declaration Scheme 2016 prior to Pradhan Mantri Garib Kalyan Yojana. IDS has ended up garnering Rs 65,000 crore in unaccounted income.

Also, the tax rate under the PMGKY scheme was very high. And because the government had made clear it was not an amnesty scheme, the risk-return trade-off should simply not have been attractive enough.

“There is a very simple reason for the failure of PMGKY. The scheme was held out as an alternative to something much worse that would befall the taxpayer if he did not come clean. It is human nature that such situations bring out the fighting spirit in the intended victims. Also, the fact that the government kept changing its position every second day convinced taxpayers that they were not safe regardless of whatever they did. This lack of trust engendered a confrontationist attitude guaranteeing the failure of PMGKY,” according to DK Saksena, former Principal Chief Commissioner of Income-Tax.

Other successful black money disclosure schemes

The Indonesian tax amnesty scheme which concluded on February 28, 2017, is a good example. Due to moderate tax rates, Indonesia garnered declaration of income and assets to the tune of USD 330 billion in its tax amnesty scheme as against the less than USD 10 billion in IDS and USD 2 billion in PMGKY.

Argentina too did well considering that it garnered USD 80 billion in declarations in its amnesty scheme.
First Published on Jun 5, 2017 08:22 pm
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