Indian finmin sees more tax compliance in future – IDS a ‘success’

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KUWAIT CITY, Oct 2, (Agencies): India’s Finance Minister Arun Jaitley said on Saturday the success of the Income Declaration Scheme would lead to greater tax compliance and provide much needed revenue for the government to spend on infrastructure and social and rural economy, according to the Times of India newspaper.

“The object was to try and make India a more tax compliant society. Tax compliance leads to higher revenues, reduction of budget deficits and money collected is spent on infrastructure, social sector and the rural areas,” Jaitley said.

He added, Prime Minister Modi had taken a tough stand against black money and was now “walking the talk”.

Officials said by adding Rs 650 billion to the “white economy”, the scheme’s success would have a positive impact on the economy. (one billion Indian rupees works out to approximately KD 4,542,160)

Officials said the government had not budgeted for the amount it would realize from taxes under IDS and the amount of Rs 147 billion this year and a similar amount next year will come as a boost to the cash strapped government. The IDS will yield tax revenue of Rs 290 billion or 0.2% of the GDP.

The scheme is another step in the government’s fight against black money starting with setting up of the Special Investigation Team in its first cabinet meeting after assuming power in May 2014.

Since then, over Rs 80 billion of black money has been assessed from the HSBC list, with another Rs 41 billion disclosed through the compliance window for foreign black money.

Over Rs 560 billion of black money has been detected through search operations, they said.

The government’s resolve to tackle the black money menace was demonstrated by the recent re-negotiation of the Mauritius Double Tax Avoidance Treaty, which had been a source of tax evasion.

The IDS, unlike the Voluntary Disclosure Scheme (VDS), involves payment of full tax plus a penalty of 50% of the normal tax. “In VDS, the slab rate payable was 30%, while the effective rate of tax was lower,” the official said, adding that under IDS those declaring assets had to value them at their current market value.

In VDS, those declaring their unaccounted money were given discretion to value their assets, like gold and real estate, at a back-dated value. Because of this, the scheme led to undervaluation of assets.

Therefore, though a tax of Rs 97 billion was collected from a declaration of Rs 335 billion it reduced the growth rate of tax revenue in subsequent years.

Indians have declared almost $10 billion in hidden wealth under a government amnesty on tax evasion, as part of Prime Minister Narendra Modi’s moves to crack down on huge piles of black money.

Finance Minister Arun Jaitley said the four-month scheme that closed on Friday had resulted in 64,275 declarations of previously undisclosed assets and income, totaling 652.5 billion rupees ($9.8 billion).

“With so many people declaring money it shows a significant number of people want to become tax compliant,” Jaitley told reporters in New Delhi on Saturday.

“This figure could be revised upward once the final tabulation is done,” the minister said, adding that the additional revenue would help fund public welfare schemes.

India’s taxpayers are startlingly few, with only around 2.5 percent of its 1.2 billion population filing returns — largely because the so-called unorganised sector employs so many people who are paid cash.

Modi vowed to crack down on tax avoidance to tackle the country’s yawning inequality after storming to power at elections in 2014.

His government introduced a slew of rules this year including making it mandatory to declare a unique taxpayer number when purchasing goods over 200,000 rupees.

Under the scheme, authorities promised not to pursue Indians in return for coming clean on hidden wealth and paying tax on it.

But accountants and other experts remained sceptical about whether Indians would cough up their wealth. The government did not announce a public target for the initiative.

Across all levels of society, rounding up tax is difficult when dodging it is practically a national sport, from small-time landlords who request rent in cash to large-scale money laundering via state lotteries.

Only six people earning over 500 million rupees ($7.4 million) filed returns in 2012-2013, despite there being an estimated 2,100 ultra-wealthy Indians whose net worth exceeds $50 million.

Billions of dollars in unpaid taxes deprive the government of revenues that could be spent on changing lives in a country where 270 million people survive on less than $2 a day, according to the World Bank.

 

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