The Nation owes it to Baba Ramdev and his threat of a fast unto death with regard to the focus on black money stashed away abroad. Driven to the wall by the carping comments of the Supreme Court on the one hand and the rising popular mood against corruption , the Government of India has announced the setting up of a Committee of Experts to go into the question of black money.
The Chairman of the Central Board of Direct Taxes, Mr Sudhir Chandra, and some of his colleagues have been asked to submit a report within six months. The Committee will go into all aspects of black money and suggest measures to stop its generation. It will also find ways and means of bringing back unaccounted income and wealth stashed away in Swiss banks and other entities after levying proper taxes.
The government has also thought it fit to seek the advice of the committee on the question whether ill-gotten wealth secreted abroad can be declared national asset and confiscated . Simultaneously, institutions such as the National Institute of Public Policy and Finance will try to estimate the quantum of black money.
The Government has also announced its intention to publish in newspapers names of asseessees who have not paid large taxes levied on them.
The idea is that the public may give clues about the secret wealth and incomes of such defaulters. It is a well known fact that such clues emanate from whistle-blowers who work closely with the defaulters.
“Too many people remain silent in the face of fraud”, said, Ms Marry Shapiro, the Chairman of America's Securities and Exchange Commission while announcing new Rules to encourage corporate whistle-blowing.
After the collapse of Enron in a flurry of fraud, the American Congress passed the Sarbanes-Oxley Act in 2002 in order to protect whistle-blowers from retaliation.
India's tax system does encourage a breed of informers to pass on tips about black money held by business tycoons. Not much is known about the quantum of rewards paid to such secret agents.
The Economist commented that recent changes made by the SEC with regard to reward Rules for whistle-blowers may result in a deluge of useless tips: “but even that might be better than status quo”.
The Government has also entered into tax information exchange agreements with a number of countries this year.
Apart from tax havens, negotiations are on with several countries to bring about amendments in the Double Taxation Avoidance Agreements. A revised treaty containing exchange of information clause was signed with Switzerland.
The Sudhir Chandra panel
How will the Sudhir Chandra Committee fulfill the entrusted task of finding ways and means to declare secreted income and wealth kept abroad by Indian citizens as national assets? This will amount to confiscation.
Our tax law never contemplates confiscation of ill-gotten wealth or income. Tax is levied at 30 per cent and penalty at the equivalent rate of 30 per cent. The balance 40 per cent can be taken back by the tax evader. Even our Constitution does not have provision for confiscation.
Amendment of the Constitution for this purpose may be an attractive idea, but it will take us nowhere. The Basic Structure Doctrine may not permit such confiscation. To locate the secret wealth and income kept aboard, tax it and recover the proceeds to India - a tall order indeed for the expert committee.
The British example
Secret accounts in tax havens happen to be a chronic problem with several Western nations also. In October, 2010, the British and Swiss Governments signed a joint declaration to work towards taxing Swiss bank accounts owned by British citizens.
Swiss banks will be obliged to tax interest payments to British Bank holders probably at a rate of 50 per cent on income from Swiss bank accounts. Such taxes collected by Swiss banks will be remitted anonymously to the British Treasury authorities.
Apart from this withholding tax, investors will also have to pay a separate levy towards unpaid taxes in the past. Swiss bank will also require their British clients to show that they have complied with British tax laws.
The names of account holder will be kept secret but taxes due thereon would have been collected and remitted to the U.K treasury.
According to one estimate, the amount of income and wealth belonging to Britain kept in Switzerland will be of the order of $125 billion. The UK may gain £6 billion by this device. The names of secret account holders may not be revealed, but Revenue will gain.
India may look around the world to see how other countries are tackling this menace.
Our tax-GDP ratio, even after taking into account the State Revenues will stand only at about 16 per cent of GDP. The UK has 34.3 per cent, Germany 37 per cent and the US 24 per cent.
Collection of taxes from secret account holders in Switzerland and other tax havens may contribute much to increasing the tax-GDP ratio.
(The author is a former Chief Commissioner of Income-Tax.)