Tax evasion and unaccounted-for wealth, or black money, unquestionably deserve closer scrutiny by the government. However, the kind of action that has been taken on this front of late is disturbing. Rather than solving the problem, it threatens to return India to a nightmare that has been almost forgotten, a time when having foreign income or assets would almost automatically lead you to be harassed by the taxman. The replacement of the dreaded Foreign Exchange Regulation Act, or FERA, was supposed to end that harassment. But, through various recent actions, the government has opened the door to such behaviour again.
The biggest problem is the new overseas black money law. New problems and questions keep on cropping up with this law. The latest worry is that retirement plans abroad, such as the 401(k) that is common in the United States, will need to be disclosed - even if the individual holding these plans has returned to India long since, and has simply chosen not to close the plan in the US because of the tax penalty involved. The penalties involved for failure to disclose any such retirement account wold be severe. The threat of severe penalties will be sufficient, of course, for there to be an opportunity for harassment or corruption. For that matter, it is far from clear whether forced savings such as some social security contributions - which, typically, Indians working abroad for relatively short periods do not even think about carefully - will be irrelevant to the provisions of the Act. Certainly, the taxman can create trouble even about this. There are also implications for employers who send employees abroad and then bring them back - a common practice. Bonus payments, stock options and so on, will require more complicated treatment, and the onus may be on the employer. Or if an employer chooses not to put overseas payments in the Form 16 because of some exemption under domestic tax law, they may be questioned for incorrect withholding. Errors by the employee on retirement or social security - ordinarily part-paid by employers - could lead to the company being in the dock for abetment, which also has criminal provisions under the new law.
The basic problem is that the government has gone about the black money problem the wrong way. It has chosen a tax office-focused, 1970s approach. Surely the government knows that draconian criminal provisions have existed in the past, and failed to work. Why are civil penalties not enough? The idea is that harsh punishment will make up for lax enforcement and poor systems. This is both wrong and dangerous. All such actions are capable of doing is to harass the salaried tax-payer, when what is needed is to check those who defraud the taxpayer on a massive scale. A major rethink of the black money laws is needed.
