The Black Money Bill - Can it desist the offenders?

With the Undisclosed Foreign Income and Assets bill, also known as the anti-black money bill being presented on 1^st May 2015, the issue of illicit wealth has come back to the spotlight. Black money has been a grave concern which has plagued the Indian system. It is speculated that more than $500 billion have been stashed outside India. Tax evasion resulted by the money routed abroad increases the tax burden on honest taxpayers. This black money also leads to security threats as the same unaccounted money could be used for illegal activities. The incumbent government, during the elections, had assured the masses to bring back the money and punish the culprits. To speed up things, government set up a special investigation team (SIT) and proposed the above mentioned bill with separate guidelines and separate taxation for the illicit money. However, no significant progress has been achieved and the matter still remains as a cause of worry. Amidst all this activity, this upcoming bill could contribute in making a robust system free from illegal Hawala transactions.

Highlights of the bill:

Offence	Punishment
Wilful tax evasion	·         jail term of 3-10 years ·     fine of 90% of undisclosed income or the value of the asset or three times the amount of tax evaded ·      tax will be levied on the entire foreign undisclosed income at the flat rate of 30%
Failure to file returns of foreign income or assets	·         First timers: Penalty of INR 10 lakh ·        Repeat offenders: Imprisonment of 3-10 years and fine of up to INR 1 crore

• Limited compliance window will be given to the offenders to disclose any such assets, tax levied would be at the rate of 30% and the accused will bear the onus to prove his/her innocence.
• Undisclosed holdings of less than INR 5 lakhs at any time during a year not reported out of oversight or ignorance will not entail penalty or prosecution
• Centre will have the power to enter into agreements with other countries which aid exchange of information, tax recovery and avoidance of double taxation.

However, the bill has resulted in some apprehensions for India Inc. To begin with, clarity on the format of the disclosures and the valuation of foreign assets are yet to be discussed in Parliament. Disclosures will have to done in a format that would be notified to the taxpayers in the later stages. In the absence of clarity, it would make the taxpayers reluctant to come forward with the disclosures. Also, without a precise valuation framework in place, the possibility of disputes during valuation could be manifold.

Furthermore, the requirement to disclose beneficiaries raises compliances for companies and individuals. The rules seem to be quite stringent for inadequate disclosures resulting from unforeseeable circumstances. Exemption of INR 5 lakhs would be comparatively low when considered in terms of foreign income.

It would be expected from the government that the rules drawn are well-defined, simple and not left to the discretion of the officers handling the matter. Considering the magnitude of black money stashed abroad and the intentions of the offenders, avoiding loopholes would be crucial. If drafted with utmost precaution, the bill could be a stepping stone in curbing outflow of illegal money from the country.

-Divya Nadar

SIMSREE Finance Forum

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