The much-awaited White Paper on black money tabled in Parliament on Monday mooted an immunity scheme as a one-time option to encourage Indians to bring back money stashed abroad. The paper also suggested examining a demand on tax immunity for a gold deposit scheme.
The White Paper, tabled by Finance Minister Pranab Mukherjee, prescribed moderate tax rates and measures to rein in the parallel economy in real estate, the financial sector and stock markets.
Citing the examples of the US, the UK, France and Germany, the paper said, “In the past, India has also opted for voluntary disclosure schemes. A similar scheme, targeted at black money stashed abroad, can be a one-time option in view of the increasing capacity of tax administration to access information from foreign jurisdiction.”
|SUGGESTIONS IN THE PAPER|
|> Rationalise tax rates, cut transaction costs for compliance and administration|
|> Pursue further economic liberalisation|
|> Ensure financial sector reports all global transactions above a threshold|
|> Make electronic payment and reporting pre-conditions for registering property|
|> Promote credit and debit cards, as they leave adequate audit trails|
|> Reform natural resource sectors in coordination with states|
The finance ministry in the paper, however, mentioned the general public mood against any such immunity scheme and that it may trigger expectations of similar measures in future. “While such schemes help in recovering some of the lost tax revenue, their overall feasibility needs to be assessed,” it said.
Neeru Ahuja, partner, Deloitte, Haskins & Sells, said any immunity scheme had to be examined in the context of a government affidavit in the Supreme Court that it would not bring any other such scheme after the voluntary disclosure scheme in the 1990s.
The paper also took note of a demand for a gold deposit scheme, which would extend tax immunity if holders came forward to make deposits. “However, the issue of complete tax immunity needs to be examined in the light of other policy objectives,” the paper said.
The paper neither gave any estimate of unaccounted money nor revealed any names that could be held responsible for its accumulation.
However, it deemed an estimate by Global Financial Integrity that money to the tune of $213.2 billion was moved out of India from 1948 to 2008 on the higher side, as part of the money would have been re-invested in India through participatory notes or round-tripping via Mauritius. It observed various reports that estimated the quantum of black money, including one by the National Institute of Public Finance and Policy, had been criticised for their assumptions and approximations.
The paper said reform of the financial and real estate sectors would help reduce the generation of black money in the long term the way the freeing of gold imports had helped check smuggling.
The realty sector, which constitutes 11 per cent of GDP, was a common means of parking unaccounted money and a large number of transactions were not reported or under-reported, it said.
Among sources of black money, the paper cited multi-layered corporate structures used to avoid taxes, giving the example of the Vodafone-Hutchison deal. It also blamed the transfer pricing route for aiding black-money generation. “It is unfortunate that corporate restructuring and transfer pricing are considered among modes by which black money is generated,” said N C Hegde, partner, Deloitte Haskins & Sells.
|BLACK INCOME ESTIMATES
(As % of GDP)
|Year||O P Chopra
|A K Ghosh
|Source: White Paper on black money|
While senior BJP leader Jaswant Singh equated the paper with a bikini, saying it hid the essentials and revealed less significant details, tax experts said the paper suggested potential aspects that could be looked at by the government.
Calling for moderate tax rates, the paper said, "In the past two decades, India has followed the approach of gradually bringing down rates of all major taxes imposed by the central government. The rising tax revenues as a result of this approach reflect greater voluntary compliance and apparent success of the policy measures.”
The paper pitched for the introduction of the Goods and Services Tax to integrate the efforts of different agencies dealing with black money.