Big issues, Uncategorized

Income Declaration Scheme

 Prime minister has warned black money holders that stringent action would be taken including imprisonment if they did not declare black money before 30th September. People are investing their black money in gold and a message has to be delivered that they should come clean with the onetime compliance window ending on 30thSeptember.

Highlights of the scheme

This scheme has been announced by Ministry of Finance which is applicable from 1st June till 30th September 2016. The Income Declaration Scheme is not an amnesty scheme to reward dishonest taxpayers.

The scheme extends an opportunity to come clean by paying more than the normal tax. Under this the undisclosed income and the high net worth transactions without PAN number are called Black Money.

Now people can pay 45% tax and can regularise this money. This kind of scheme was introduced in 1997 with the tax rate of 30%. At that time as many as 260 billion rupees assets and 70 billion rupees tax were deposited by people. The scheme was very successful.

The government does the same thing once in a while so that both the government and the people are benefited.

If the provisions are not obeyed, then strict actions are taken including imprisonment.

Prime minister said the government should not be forced to take action against black money holders. Government should compliance self discipline which is the best kind of discipline. Notices to around 7 lakh of high net worth individuals have been given. The government has relaxed the norms and allowed people to pay in three instalments over a period of 1 year.

The idea is to make the scheme successful. To make the scheme more effective the government should reduce the tax rate to 35% to attract more people to comply.

Why is it important to pay taxes?

Many counties have higher tax rates than in India. In counties like Switzerland and Sweden the rates are 50%. In America the rate is 45%. In India the tax rate is reasonable and government provides subsidies for fertilizers, gas etc. We expect so much from the government and for that people should pay taxes.

We expect lot from the government. We expect education, roads, electricity, metro etc. The money required must come through taxes or else the government should print the money which leads to inflation.

John f Kennedy has rightly said that “Ask not what your country can rightly do for you, ask what you can do for your country”

This is the least contribution to the civil society we make and take the full advantage.

The other issue is Benami transaction Amendment bill. Once the bill is passed the Benami transaction ceased by the authorities will be confiscated by the government. The income declaration scheme gives an opportunity to those holding such Benami property to come clean by paying 45% tax.

How is black money generated?

The money is generated by corrupt practices. The nexus between government officials and business people during the period of licence Raj. At present it is called Permission Raj. To get those permissions, like to open a school we need 53 permissions, to do an investment banking we need 90 permissions. For all these permissions the money is paid. This generates black money.

Black money is generated by Overinvoicing or underinvoicing of the exports or imports from the countries like Singapore, UAE and Hong Kong.

Most of the black money is parked in jewellery business and real estate. When the value of the rupee goes down and if somebody has invested in gold and the prices of gold is going up, they would be benefitting.

If people are not sure about the market for starting a business, they invest in gold or real estate. Real estate is a safe way because usually the prices of land go up. But in the last 4 to 5 years real estate market is down for so many reasons, but usually land has been a good investment.

There are lot of offshore schemes by which black money is generated. India has Double Taxation Avoidance Agreement (DTAAs) with more than eighty countries, of which comprehensive agreements include those with Australia, Canada, Germany, Mauritius, UAE, the UK and US and Singapore.

Tax planning is always welcome, but Tax avoiding is not. Now there is a great opportunity for those people who have not disclosed their income.

Various estimates say that the total exceeds of black money is $50 trillion; some say it is $500 billion. There is a sharp difference of the quantum of black money in India. Generally the black money in India is 50% of its GDP. There are no specific data and these are only speculations.

Conclusion

Supreme Court ordered setting up of Special Investigation Team. Progress has been made in India in sharing black money information with other countries like Switzerland which has agreed to share information with India. Sharing of information and declaring the names is a big step and governments are cooperating with each other.

Let’s hope those people who avail black money will avail the facility of Income Declaration Scheme and come clean, pay their taxes and get rid of their tension on this front.

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