Modi Gives Last Chance for India Tax Evaders in $2 Trillion Hunt

Jakarta Globe, Unni Krishnan & Vrishti Beniwal, Mar 04, 2015

India's Prime Minister Narendra Modi. (Reuters Photo/Stringer)

Indian Prime Minister Narendra Modi has a simple message for tax evaders: Come clean now and avoid jail.

Under a law proposed last week, offenders will have a window to declare income illegally stashed in overseas accounts and pay penalties before investigations start, Revenue Secretary Shaktikanta Das said in an interview on Tuesday. After that, they face as much as 10 years in jail and fines of as much as 300 percent of the amount originally owed to the government.

“There will be no amnesty, but the government will give a one-time compliance,” Das said in his New Delhi office. The violator “has to pay the tax and penalty and interest and other charges, but we won’t criminally prosecute.”

Modi’s campaign to recover so-called “black money” helps fulfill a campaign pledge amid signs his popularity is slipping as his government seeks to narrow the widest budget deficit among the largest emerging markets. Some estimates put the figure at as much as $2 trillion over the past five decades, almost equal to India’s gross domestic product.

Indians illegally stashed the most money abroad in 2011 after China and Russia, according to a report by Global Financial Integrity.

Wealthy individuals and private companies are the “primary drivers of illicit flows,” Washington-based GFI, which researches cross-border money transfers, said in a 2010 report.

Still, India has no reliable estimate of how much money is out there, and next year’s fiscal budget doesn’t rely on any inflows from the measures.

“I don’t see a dramatic river of money coming in,” said R. Kavita Rao, professor at New Delhi-based National Institute of Public Finance and Policy and author of a 2011 report commissioned by the government to study the black-market economy.

“Just the law by itself isn’t strong enough unless offenders feel there’s a flow of information and they will be caught. Frankly, that’s not the case.”

Black money

India will work with other nations to hunt black money, Modi told lawmakers on Tuesday, joining the U.S. and U.K. in targeting tax evasion.

His Bharatiya Janata Party lost state elections in the capital Delhi last month to an upstart anti- graft party that used the issue to win votes in a nation where two thirds of the population live on less than $2 a day.

India’s treasury brought in about 101 billion rupees ($1.6 billion) from an amnesty program in 1997, when more than 470,000 Indians declared 330 billion rupees of income. Under the program, they were safe from prosecution and penalties.

Come clean

“It’s my faith that, given a chance, the people of India come clean,” then Finance Minister Palaniappan Chidambaram said at the time. In 2007, the Supreme Court ruled that Indians cannot claim absolute amnesty following criticisms that such programs penalize honest tax payers.

Modi’s first full-year budget featured a fiscal deficit target of 3.9 percent of GDP for the year starting April 1, higher than a previous goal of 3.6 percent. The extra funds will be spent on roads, ports and power plants to boost growth in Asia’s third-largest economy, Finance Minister Arun Jaitley said.

The projection of a 16 percent increase in tax collections hinges on boosting growth, Das said. India’s tax-to-GDP ratio was 10.7 percent in 2012, higher than only 11 of about 200 countries tracked by the World Bank.

“All revenue numbers are linked to growth,” Das said. Slower economic expansion and “some totally unforeseen global or domestic developments” are key risks to the government’s forecasts, he said.

Bloomberg