that the lowering of the tax rate may have laid the essential groundwork for a secular, long-term decline in tax evasion. If time confirms this hypothesis, this signal shift in sentiment may well be the most important contribution of the scheme.
Several caveats would now be in order. Questions need to be raised on the use of the schemes revenue. This is very clearly an exceptional income and should not be used by the government to bridge the yawning fiscal deficit: it should only be used to retire the public debt. In fact, a policy needs to be enunciated on how to deal with such exceptional incomes in the future. The amount collected under VDIS also highlights the role and size of the black economy. Since it is doubtful if more than a fraction of the unaccounted income has been declared, there is no reason to doubt the governments own authoritative assessment that the size of the black economy is equal to if not more than half the size of the national economy. That apart, it must be remembered that amnesty schemes help bring overground only stocks of black money. More important is to stem the future flow of unaccounted income. Here we must hope that the zeal and method with which the income tax authorities are now targeting the obvious holders of
assets like cellular phones and luxury cars will result in a genuine increase in the taxpayers base. The consequent tax flows will not just be as dramatic as the VDIS but will take revenue buoyancy into a higher plane unlike the current VDIS-induced blip.
Finally, even as we take note of the success of the scheme, the basic objections to the scheme must be reiterated. These exercises are unfair to the honest taxpayer and tend to encourage tax evasion by creating the expectation that one successful scheme will tempt the authorities to undertake another. Taxing the declared income at the current rate may remove the temptation to build up a stock of declared income to take care of future flows but a person who does not pay tax today so as to declare it tomorrow and pay tax only then does save on interest. The only way in which the public will be convinced that this will be the last amnesty will be for it to see a more rigorous tax regime being put in place.
