prasad1
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On May 13, before the Lok Sabha passed the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015, Finance Minister Arun Jaitley said the world is no longer "willing to tolerate tax havens which thrive on secrecy". After the bill was passed, Prime Minister Narendra Modi tweeted that the new law is "historic".
But the government's critics argue that the new law is going to be ineffective at best or an eyewash at worst. The loudest criticism of the new law is that while it is meant to prosecute and punish Indians with illegal foreign incomes and assets, the much bigger problem of black money in the domestic economy has not been addressed.
In order to counter this criticism, the government introduced the Benami Transactions (Prohibition) Bill in the Lok Sabha the same day, within hours of its approval by the Union Cabinet. The bill seeks to amend a law that was enacted 27 years ago and which has not been effectively implemented. This bill, which targets domestic holders of black money, has been referred to Parliament’s Standing Committee on Finance.
The bill states that property acquired in the name of a spouse and children or in the name of siblings would be exempted from the provisions of the proposed law provided the property is jointly owned and funded through known sources of income. The bill includes in its purview transactions of not just immovable property but other assets such as financial securities and gold.
Particular provisions of the new act and the bill have raised doubts and apprehensions. These relate to:
(a) the provision for imprisonment for up to seven years for failure to disclose foreign assets;
(b) the imposition of penalty on the basis of "fair market value" of the asset instead of its "acquired value";
(c) the imposition of punishment on every person considered responsible for the working of a corporate entity; and
(d) the allegedly unbridled powers that have been conferred on the tax recovery officer.
Industry body, the Associated Chambers of Commerce raised some of these concerns in a statement, part of which read: 'If the value of the asset has appreciated over the years, the person making the declaration would become liable to pay tax on such unrealised appreciated value which would be substantially higher than the amount which the declarant would have invested.'
Further, the new act provides that the tax recovery officer "can draw under his signature a statement of arrears of an assessee and it shall not be open to the assessee to dispute the correctness of any certificate drawn up by the officer on any ground whatsoever." This is perceived to be excessively discretionary.
Under the new law, the manager of a company defined as per the provisions of the Companies Act, 2013, will be liable for tax recovery. This is not allowed currently. Earlier, only a company's directors (and not its managers) were liable for tax recovery.The government's critics are not convinced that the new law will help bring black money back to the country.
On May 12, well-known lawyer and expelled BJP member of the Rajya Sabha Ram Jethmalani told a Supreme Court bench headed by Chief Justice H L Dattu: "I am suspecting wrong (has been done) by both the sides (meaning the UPA and NDA governments) and the fraud has been perpetuated by both the sides. He said the new law should have a clause to ensure that all unclaimed money should be brought back to India.
The next day in the Rajya Sabha, he sarcastically described Jaitley as "the innocent finance minister" and claimed that the present government was no different from the previous one in "playing a trick" on the people of the country by claiming that black money would be brought back to the country.
Money that has been illegally kept abroad by Indians are unlikely to remain in the same place for long. Slush funds invariably move across jurisdictions rapidly and after "round tripping" are "laundered" or "whitewashed" by the time they return to India.
In order to bring back black money stashed abroad, it is important to identify and block the channels that facilitate the illicit flow of these funds. This is easier said than done.
After returning from the summit meeting of the Group of 20 (G20) countries in Australia in November, Prime Minister Modi wrote in a blog: 'India placed the issue of existence and repatriation of black money at the forefront of the world community...because this is an issue that does not selectively affect one nation... the menace of black money has the potential to destabilise world peace and harmony... black money also brings with it terrorism, money laundering and narcotics trade.'.
Following orders from the Supreme Court, an SIT on black money was instituted on May 26, four days of the new government being sworn in. The SIT is headed by a former judge of the court Justice M B Shah and comprises another retired judge of the Supreme court Justice Arijit Pasayat.
However, when asked by the Supreme Court to disclose the names of the account holders in the bank of Liechtenstein and HSBC to the SIT, Prime Minister Modi conceded that -- like the previous government -- his government could not disclose the names since there were confidentiality clauses in India's double taxation avoidance agreement with Germany.
In fact, the government pleaded that the Supreme Court review its order. Ironically, while in opposition, senior leaders of the BJP like L K Advani had bitterly criticised the erstwhile UPA government for having taken exactly the same position. More recently, on April 6, at the annual session of the Confederation of Indian Industry, Jaitley said: "India needs a stable tax regime, not a tax haven... The taxes that are due must be paid".
After a ruling by a tax tribunal called the Authority on Advance Rulings (AAR), the department of revenue in the ministry of finance had sent notices to 68 foreign institutional investors for payment of dues totaling Rs 602.83 crore (Rs 6.03 billion) towards MAT.
The earlier estimate of over Rs 30,000 crore (Rs 300 billion) was drastically reduced after transactions routed through tax havens like Mauritius and Singapore were excluded.
It is far from clear whether the new law against Indians holding funds and assets outside the country in an illegal manner or the proposed new law on benami transactions will be effective.
There is much at stake in continuing with a system which is non-transparent. It will take some years before information on international financial flows, including illicit transactions, become more easily accessible to India's law enforcing authorities.
It will perhaps take even longer for our government officials to become proactive, more efficient, effective and, importantly, honest about going after those who surreptitiously take money out of India, some of which is laundered and brought back to the country.
We in India may be proficient while making laws but we are lax in enforcing them. This story is likely to be played out once again.
India is proficient in making laws but lax in enforcing them - Rediff.com Business
But the government's critics argue that the new law is going to be ineffective at best or an eyewash at worst. The loudest criticism of the new law is that while it is meant to prosecute and punish Indians with illegal foreign incomes and assets, the much bigger problem of black money in the domestic economy has not been addressed.
In order to counter this criticism, the government introduced the Benami Transactions (Prohibition) Bill in the Lok Sabha the same day, within hours of its approval by the Union Cabinet. The bill seeks to amend a law that was enacted 27 years ago and which has not been effectively implemented. This bill, which targets domestic holders of black money, has been referred to Parliament’s Standing Committee on Finance.
The bill states that property acquired in the name of a spouse and children or in the name of siblings would be exempted from the provisions of the proposed law provided the property is jointly owned and funded through known sources of income. The bill includes in its purview transactions of not just immovable property but other assets such as financial securities and gold.
Particular provisions of the new act and the bill have raised doubts and apprehensions. These relate to:
(a) the provision for imprisonment for up to seven years for failure to disclose foreign assets;
(b) the imposition of penalty on the basis of "fair market value" of the asset instead of its "acquired value";
(c) the imposition of punishment on every person considered responsible for the working of a corporate entity; and
(d) the allegedly unbridled powers that have been conferred on the tax recovery officer.
Industry body, the Associated Chambers of Commerce raised some of these concerns in a statement, part of which read: 'If the value of the asset has appreciated over the years, the person making the declaration would become liable to pay tax on such unrealised appreciated value which would be substantially higher than the amount which the declarant would have invested.'
Further, the new act provides that the tax recovery officer "can draw under his signature a statement of arrears of an assessee and it shall not be open to the assessee to dispute the correctness of any certificate drawn up by the officer on any ground whatsoever." This is perceived to be excessively discretionary.
Under the new law, the manager of a company defined as per the provisions of the Companies Act, 2013, will be liable for tax recovery. This is not allowed currently. Earlier, only a company's directors (and not its managers) were liable for tax recovery.The government's critics are not convinced that the new law will help bring black money back to the country.
On May 12, well-known lawyer and expelled BJP member of the Rajya Sabha Ram Jethmalani told a Supreme Court bench headed by Chief Justice H L Dattu: "I am suspecting wrong (has been done) by both the sides (meaning the UPA and NDA governments) and the fraud has been perpetuated by both the sides. He said the new law should have a clause to ensure that all unclaimed money should be brought back to India.
The next day in the Rajya Sabha, he sarcastically described Jaitley as "the innocent finance minister" and claimed that the present government was no different from the previous one in "playing a trick" on the people of the country by claiming that black money would be brought back to the country.
Money that has been illegally kept abroad by Indians are unlikely to remain in the same place for long. Slush funds invariably move across jurisdictions rapidly and after "round tripping" are "laundered" or "whitewashed" by the time they return to India.
In order to bring back black money stashed abroad, it is important to identify and block the channels that facilitate the illicit flow of these funds. This is easier said than done.
After returning from the summit meeting of the Group of 20 (G20) countries in Australia in November, Prime Minister Modi wrote in a blog: 'India placed the issue of existence and repatriation of black money at the forefront of the world community...because this is an issue that does not selectively affect one nation... the menace of black money has the potential to destabilise world peace and harmony... black money also brings with it terrorism, money laundering and narcotics trade.'.
Following orders from the Supreme Court, an SIT on black money was instituted on May 26, four days of the new government being sworn in. The SIT is headed by a former judge of the court Justice M B Shah and comprises another retired judge of the Supreme court Justice Arijit Pasayat.
However, when asked by the Supreme Court to disclose the names of the account holders in the bank of Liechtenstein and HSBC to the SIT, Prime Minister Modi conceded that -- like the previous government -- his government could not disclose the names since there were confidentiality clauses in India's double taxation avoidance agreement with Germany.
In fact, the government pleaded that the Supreme Court review its order. Ironically, while in opposition, senior leaders of the BJP like L K Advani had bitterly criticised the erstwhile UPA government for having taken exactly the same position. More recently, on April 6, at the annual session of the Confederation of Indian Industry, Jaitley said: "India needs a stable tax regime, not a tax haven... The taxes that are due must be paid".
After a ruling by a tax tribunal called the Authority on Advance Rulings (AAR), the department of revenue in the ministry of finance had sent notices to 68 foreign institutional investors for payment of dues totaling Rs 602.83 crore (Rs 6.03 billion) towards MAT.
The earlier estimate of over Rs 30,000 crore (Rs 300 billion) was drastically reduced after transactions routed through tax havens like Mauritius and Singapore were excluded.
It is far from clear whether the new law against Indians holding funds and assets outside the country in an illegal manner or the proposed new law on benami transactions will be effective.
There is much at stake in continuing with a system which is non-transparent. It will take some years before information on international financial flows, including illicit transactions, become more easily accessible to India's law enforcing authorities.
It will perhaps take even longer for our government officials to become proactive, more efficient, effective and, importantly, honest about going after those who surreptitiously take money out of India, some of which is laundered and brought back to the country.
We in India may be proficient while making laws but we are lax in enforcing them. This story is likely to be played out once again.
India is proficient in making laws but lax in enforcing them - Rediff.com Business
