Not hard-headed enough

The last chance to come clean until the next time. That is a cynical view of the Voluntary Disclosure of Income Scheme (VDIS) but, unfortun...

The last chance to come clean until the next time. That is a cynical view of the Voluntary Disclosure of Income Scheme (VDIS) but, unfortunately, it is widely shared. This is only to be expected after a dozen such schemes in 30 years. Amnesties for undisclosed income and assets — and opportunities to loan black money to the government — have come and gone at the rate of roughly one in three years. So what, apart from pious hope and desperation, persuades the Finance Ministry and the Central Board of Direct Taxes (CBDT) that 1997 will the year of the honest tax-payer?

Surely they cannot actually believe there will be an overwhelming desire on the 50th anniversary of Independence to “make India strong”, as the advertising slogan urges. When it comes to money, there is nothing to beat a hard-headed, practical approach. The one element in the VDIS which could be said to fall in that category is the low tax liability. But it will not work as a stand-alone. For the carrot to be tempting, it must be well presented and declared entirely safe. And it must be clear that the alternative is the stick.

For incorrigible tax-dodgers whose number runs into the millions, paying no taxes will still be preferable unless the cost of holding black money simultaneously goes over the tax rate of 30 and 35 per cent for individuals and companies respectively. This could happen in one of two ways. Either when illegal transaction costs, including payoffs, exceed the tax rate. Or when the CBDT gets tough. The question that suggests itself after muddled official statements on Wednesday is whether the government seriously intends to do whatever is necessary to make the scheme work.

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On the one hand, its lack of clarity about the rules invites doubts about the credibility of promises of confidentiality and immunity from prosecution. On the other, very little is being said about measures to ensure tax compliance after the VDIS ends. If tax-evaders calculate that matters will be conducted as usual in income tax departments after December 31, they will not find it necessary to volunteer anything.

Official figures show tax-dodgers in this country outnumber tax-payers severalfold. Unofficial figures show foreign exchange held abroad illegally runs to tens of billions of dollars and is rising. In the face of such colossal estimates of tax evasion, all the government has to offer is a puny VDIS with the emphasis on voluntary and none on the punishment. The basic reason why earlier disclosure schemes have failed is because no one really takes taxes seriously. It is no different today.

Tax officials need only walk into doctors’ clinics to find out how little book-keeping methods have changed. There is an impression that by paying taxes, the people are doing the government a favour. Something must be done to alter such attitudes for there is more at stake than this VDIS. Tax amnesty schemes discriminate against those who pay their taxes. A system which requires 10 million tax-payers to subsidise the lifestyles of the rich and dishonest is permanently unfair. This calls for enlarging the tax net to cover a large section of the non-salaried, taxable section of the people.

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