A well intentioned initiative but needs to be implemented with caution
Manoj Kumar | March 19, 2015
Giving concrete shape to finance minister Arun Jaitley's announcement of a bill to trace black money, the union cabinet has just approved a law to track unaccounted wealth by strengthening of the prosecution mechanism and enhancing exchange of information, also including in its ambit stringent provisions for prosecution of offences.
The Undisclosed Foreign Income and Assets (Imposition of New Tax) Bill, as the new legislation is known, was first declared during the budget, and signals the fulfillment [or at least the start thereof] of one of the current government’s most prominent poll promises prior to the 2014 general elections.
The need for such a law has arisen because black money, being a serious issue that has a debilitating effect on governance and public policy, and which affects the poor disproportionately, has become an increasingly common and pervasive phenomenon.
Certain sectors have come to be more vulnerable than others to its consequences, including land and real estate, bullion and jewelry, financial markets, public procurement, the non-profit sector, informal sector and cash economy; the bill focuses on how to stem the manipulation of financial records and accounting techniques that are used to generate black money.
This development is especially important in the face of such recent events as the release of a list by a newspaper of Indian account holders, many of which are suspected to include unaccounted assets in a prominent banking facility’s Geneva branch. Experts have held this as a classic example of tax evasion caused by the significant lowering of standards of due diligence.
The finance minister has also announced a slew of other measures to deal with this situation, such as the disincentivisation of cash dealings in real estate and other transactions, and a new, more comprehensive Benami Transactions (Prohibition) Bill to re-enforce existing law. In addition, the cabinet has given approval for India to join the multilateral competent authority agreement to facilitate automatic exchange of financial account information, which will enable the government to receive information about Indian assets held abroad, from the US and other countries.
Important provisions in the proposed bill include:
In these circumstances, stakeholders must also ponder what further steps could be taken to strengthen existing infrastructure in order to minimize black money related offences. Some that have been suggested previously by a ministry white paper on the subject include:
Having recourse to information as well as black money allegedly stashed abroad has been an uphill task thus far, for bot the UPA and the present governments. The proceedings initiated in the recent past against alleged defaulters have also raised the debate whether the tax authorities need to be more sensitive to genuine money parked abroad by India Inc. as against public money removed from the development process and allegedly syphoned off abroad. A need for balance in implementation of any such initiative is imperative for the drive to be a sustainable one. We need to see how the tax authorities bring the new law to the ground in times to come.
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