FM not in favour of amnesty schemes

RUN UP TO THE BUDGET 2004-05/ TAXING QUESTION

Finance Minister P Chidambaram has ruled out an amnesty scheme similar to the infamous Voluntary Disclosure of Income Scheme (VDIS) announced by him in 1997. Tax experts wonder if schemes to unearth black money can be successful if they do not promise amnesty.

The United Progressive Alliance's common minimum programme, however, calls upon the government to devise an innovative scheme to unearth black money. Chidambaram had given the same explanation while announcing the VDIS in 1997.

According to a study by the National Institute of Public Finance and Policy published in 1985, black money accounted for 18-21 per cent of the country's gross national product (GNP) in 1981-82.

Independent estimates, however, estimated the parallel economy to be much larger at almost 50 per cent of the GNP then. In 1997, when the VDIS was announced, the GNP was about Rs 12.6 million crore.

Under the scheme, which was effective for six months, the total income disclosed was Rs 33,000 crore, or a meagre 2.6 per cent of the GNP on which the Centre raked in Rs 10,050 crore.

This helped the Centre to shore up its income-tax collections. The scheme, however, resulted in widespread criticism since such amnesty schemes penalised honest tax-payers and simultaneously encouraged evasion since offenders can always expect another amnesty.

But for the VDIS 97, none of the tax amnesty schemes announced earlier, earned anything significant for the government.

Five earlier tax amnesty schemes yielded just Rs 780 crore failing to extract any significant amounts of black money from the system. Even the Voluntary Disclosure of Income Scheme did not elicit any decent response from the corporates.

A former member in the Central Board of Direct Taxes said that even small businessmen and partnership firms, which made declarations then, largely did it under personal heads, rather than in the name of the firm.

The more recent Kar Vivad Samadhan Scheme, announced by Yashwant Sinha in his 1998 Budget speech, also failed in its objective of declogging the administration and realisation of government dues.

The Comptroller and Auditor General had slammed this scheme and noted that it provided an escape route for several debtors whose liability was not disputed. The CAG said that the government sacrificed Rs 624 crore to realise just Rs 400 crore.

Tax experts say that amnesty schemes just help tax evaders to absolve their sins at the expense of honest tax-payers. The Left's stance on unearthing black money has, however, put Chidambaram on a sticky wicket.

However, the VDIS of 1997 stood out as the savingh grace, which gifted amnesty to tax evaders. All other schemes were failures.