It is hoped that a limited amnesty window offered in this year’s Budget for tax evaders to come clean may go some way in resolving the long-standing issue. But real change can come only with a shift in mind-sets and robust global cooperation.
Common bonds of humanity and social contract mean that citizens have a responsibility and a fair tax system provides the essential means towards fulfilling the citizen end of the contract. While paying taxes may be misconstrued as a noble or charitable act, it is in fact in the interests of the citizens to pay their fair share in order to ensure a safer society conducive to further wealth creation.
Indian finance minister Arun Jaitley said in his Budget speech: “I propose a limited period compliance window for domestic tax payers to declare undisclosed income represented in any form of assets and clear up past transgression by paying tax at 30 per cent, a surcharge at 7.5 per cent, a penalty at 7.5 per cent which is total of 45 per cent of undisclosed income.
“There will be no scrutiny or inquiry regarding tax in these declarations under Income Tax Act or Wealth Tax act and declarations will have immunity from prosecution.”
The limited tax compliance window will be functional from June 1 to September 30 this year, with an option to pay the amount due within two months of declaration. This has been widely hailed as a pragmatic approach to a very complex issue. It also reflects the government’s determination to bring back funds that may have been illegally taken outside the country.
Arbinder Chatwal, who heads up the Indian Advisory Services Group for BDO LLP, writes in his Budget analysis for India Inc.: “The Automatic Exchange of Information (AEOI) based on a Common Reporting Standard, when fully implemented, would enable India to receive information from almost every country in the world including offshore financial centres. Hence it would be instrumental in getting information about assets of Indians held abroad, including through entities in which Indian individuals and corporates are beneficial owners and thus aid in preventing international tax evasion and avoidance.”
India has not only taken a lead role in international debates to build consensus on AEOI but is also an “early adopter” committed to exchange information automatically by the year 2017.
As British Prime Minister David Cameron said in his speech a few years ago when G8 governments agreed to give each other automatic access to information on their residents’ tax affairs: “This international tax tool is going to be a real feature of ensuring that we get proper tax payment and proper tax justice in our world.”
With an ever increasing number of cross-border deals around the world, it is only with robust international cooperation that true tax transparency can be achieved and India has shown that it is ready to play its part.