India tax amnesty draws $9.8bn in declarations

Posted on October 2, 2016

FILE - In this Aug. 4, 2016 file photo, India's Finance Minister Arun Jaitley addresses a press conference in New Delhi, India. Tens of thousands of Indians have declared a total of $9.5 billion in black money as part of a one-time opportunity to come clean under a government scheme, Jaitley said Saturday, Oct. 1. (AP Photo/Altaf Qadri, File)©AP

A four-month amnesty for tax evaders in India has resulted in the declaration of hidden assets worth nearly $10bn, the government has said, as it seeks to fulfil an election pledge to crack down on illicit “black money”.

The Income Declaration Scheme, which ran from June through September, allowed citizens to report assets previously undeclared to the tax authorities, without risk of prosecution. 

A charge of 45 per cent was to be levied on the assets declared under the scheme — one of the most conspicuous initiatives in Prime Minister Narendra Modi’s drive to tackle widespread corruption that is seen as a significant drag on the economy.

Arun Jaitley, finance minister, told reporters at the weekend that assets worth Rs652.5bn ($9.8bn) had been declared under the scheme, implying a boost to government revenue of Rs294bn. 

$9.8bn

Amount of assets declared under India’s four-month tax amnesty

The amnesty attracted 64,275 declarations, with the average amount declared standing at Rs10.2m. Mr Jaitley cited this to rebut prior fears that the initiative might not elicit a response from wealthy Indians.

New Delhi had not publicly stated a revenue target, but some media reports had said officials were aiming to uncover about Rs1tn in previously undeclared assets.

    The initiative followed a similar one launched in 1997 that yielded revenue of Rs97.6bn — but Mr Jaitley said the latest drive was firmer in its treatment of evaders, arguing that the previous effort had allowed them to make payments based on unduly low valuations of their assets.

    Only about 4 per cent of Indian adults pay income tax, according to the government’s latest economic survey. While the annual income of most Indians is below the Rs250,000 threshold beyond which income tax is due, the slender income tax base also reflects the extent of economic activity that occurs through informal transactions beyond the oversight of tax officials. 

    Such activity amounts to about 20 per cent of gross domestic product, according to a recent report by analysts at Ambit Institutional Equities. 

    That report argued that heightened official scrutiny of domestic transactions had encouraged tax evaders to keep money in cash, hitting demand for formal banking services as well as for property and gold — asset classes commonly used to launder money. Liases Foras, a property research firm, estimated in 2014 that 30 to 40 per cent of Indian real estate transactions involved an illicit cash payment.

    Firm progress in reducing tax evasion would boost the credibility of Mr Modi’s government, which made this a key part of its 2014 election manifesto. 

    $343bn

    Estimated amount of assets Indians sent abroad illicitly between 2002 and 2011

    Central to the drive has been the pursuit of funds concealed in offshore accounts, of which Mr Modi pledged before his election “to bring back every rupee…and use it for the welfare of the poor”.

    The US-based group Global Financial Integrity has estimated that Indians sent $343bn of assets abroad illicitly between 2002 and 2011.

    Last year India’s parliament passed a law imposing criminal penalties for the illicit concealment of overseas assets. This year the government scrapped a treaty with Mauritius under which investments from the island state were exempted from capital gains tax: an arrangement that had been criticised for allowing wealthy Indians to “round-trip” illicit funds back into the country. 

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