ASSOCHAM calls for amnesty plan, 40% tax to get back black money from overseas
New Delhi: Amid on-going debate in the country on black money, industry body ASSOCHAM today suggested an amnesty scheme for six months to bring back illegal funds stashed in foreign tax havens and a flat 40 per cent tax on the disclosures on the current value and in addition must invest for infrastructure development.
“The funds collected should be used to develop physical and social infrastructure in the country,” said Mr Dilip Modi, president of The Associated Chambers of Commerce and Industry of India (ASSOCHAM), after submitting the report to finance minister Pranab Mukherjee. The prime reason for black money generation has been elections.
The ASSOCHAM report was released in a press conference jointly by Mr Modi, Mr Ved Jain and Mr R.K. Handoo, chairman and co-chairman of the chamber’s expert committee set up in September last year to examine the issue and recommend a realistic strategy to the government, and secretary general D.S. Rawat. The amnesty scheme be applicable to the black money stashed abroad and may be in India.
“A high rate of 40 per cent tax with further investment of ten per cent in infrastructure bonds as compared to the present maximum tax rate of 30 per cent will help ensure that there is no misuse of the scheme by unintended persons,” said the report.
While making this amnesty proposal, ASSOCHAM is conscious of the fact that tax evaders should not get away and be shown leniency. “However, ground realities cannot be ignored. The fact remains that as on date it may not be possible to get hold of these persons who have stashed money abroad.
That is why such scheme could be an invitation for these people to come forward and pay taxes.”
The window should be kept open for at least six months. “There will be a large number of people who would like to come forward voluntarily and make such disclosures,” said the report adding that over a trillion dollars parked in overseas tax havens may help the country in meeting revenue deficits and the balance of payments.
But the amnesty scheme should not be applicable in cases where authorities have detected unaccounted money and proceedings have been initiated, it said.
To improve offshore compliance, various countries have taken initiatives with significant results. Italy generated additional revenue yield of 5.6 billion euros, the United States 2 billion euros, Germany 1.8 billion euros and France 1.2 billion dollars.
India also needs to conclude tax information exchange agreements with various countries and forge greater cooperation with G-20 partners to control the menace of black money. The country has 83 double tax avoidance pacts but not all have clauses on exchange of tax information.
Back home, said the ASSOCHAM report, generation of black money is mainly due to understated real estate transactions, huge expenditure incurred on elections, misuse of discretion by public authorities, huge gold consumption and foreign exchange restrictions.
A uniform stamp duty rate of three per cent should be applicable across the country for real estate transactions with the benefit of allowing credit of stamp duty paid at the time of purchase. The circle rates need to be notified each year on the basis of data input for previous year to ensure that they are as good as prevalent market rates.
One of the main factors contributing to the parallel economy in the form of black money is huge expenditure incurred during elections for Parliament, state assemblies, municipal corporations and panchayats. Two main reasons for huge unaccounted money in the economy are restriction on expenditure a candidate is legally allowed to spend and absence of legitimate source of a candidate’s income.
“It is high time the country electoral reforms and enacts laws relating to public funding while considering ground realities,” said the report.
Misuse of discretion by public authorities has also led to generation of black money which either gets stashed abroad or finds way in undervalued properties and precious commodities like gems and jewellery. This can be checked by infusing accountability, imposing penalty on culprits and restricting discretionary powers of civil servants.
India is the biggest consumer of gold whose import is on payment of foreign exchange while the sale is mainly in cash, leading to generation of huge black money. There is an urgent need for a mechanism to curb this tendency.