Brokerage house Jefferies feel that given its stated intention of bringing back black money hoarded by Indians in foreign countries, the Bharativa Jananta Party (on condition that it ascends to power), should consider an amnesty scheme on the lines of Voluntary Disclosure of Income in 1997.
With this, the government would reap up to USD 30 billion, according to a note by the brokerage.
Macquarie note indicate that even globally, voluntary disclosure appears to be the most popular mechanism with countries including US, UK, Australia, and others introducing VDIS in one way or the other. The note also pointed out that the US and Italy earned 3.6 billion Euros and 5.6 billion Euros respectively after introducing tax amnesty schemes in 2009 and 2011.
According to Jefferies estimates, the amount of black money in the country accounts for between 20-30 percent of GDP, or approximately between USD 300-500 billion.
In reference to the note, a voluntary discloser scheme, if properly executed, could lead to income declarations amounting to about USD 100 billion (about 6% of GDP) and tax collection of around USD 30 billion (nearly 1.7% of GDP), which will deal with some issues at the same time. The note also states that this would have significant impact on fiscal deficit and balances of payments.
The United Front government in 1997 managed to raise around Rs 10,000 crore in taxes through VDIS, a hobbyhorse of the then Finance Minister P Chidambaram.
Although the scheme was successful and boosted the government’s coffers, there emerged outrages as well. A Public Interest Litigation was filed in the Supreme Court in contention that the schemes such as VDIS penalized honest tax payers while encouraging tax evaders at the same time.
At that time, the government gave an undertaking to the Supreme Court saying that VDIS was the last of its kind and would not introduce such schemes in the future.
During last year’s Budget, the government announced an amnesty for service tax offenders, coined as Service Tax Compliance Encouragement Scheme. The scheme was in effect till December last year and is learnt to have fetched the government around Rs 6000 crore.
Chidambaram stated that the government will not be in a position to announce any more amnesty schemes in the next 20 years, due to some factors, such as restrains imposed by the Supreme Court.
According to the Finance Minister, such schemes cannot be announced each year since the Supreme Court judgment on VIDS.