MoF raises doubts about future amnesty schemes

The focal point of the law ministry’s apprehension, it is learnt, centres around a commitment to the Supreme Court by the tax authorities that VDIS (Voluntary Disclosure of Income Scheme) 97 would be the last amnesty scheme to be introduced by the government.

The law ministry’s concerns are in the context of an amnesty scheme which, sources say, the finance ministry is contemplating. However, the finance ministry seems to be confident of sorting out the problem by evolving a scheme that would look different from VDIS 97.

The sources said the finance ministry is considering a scheme for funding infrastructure projects by issuing bonds. The element of amnesty in this scheme is that no questions will be asked about the source of funds to the subscriber of the bonds.

The government proposes to raise at least Rs 10,000 crore this way. VDIS’ 97 had mopped up about Rs 10,500 crore.

Interestingly, amnesty schemes are frequently used by the tax authorities of even advanced countries who have put in place a sophisticated and automated tax administration that makes evasion difficult. At present, there is an amnesty scheme under way in California in the US.

Under the Californian scheme, an amnesty is given to those who did not file the required tax returns, not reported income on a previously filed tax return, those who have claimed excessive deductions and those who did not pay previously assessed taxes, interest, penalties or fees.

The scheme excludes taxpayers under criminal investigation or prosecution on tax-related matters. India had introduced about nine amnesty schemes of varied features in the past, beginning with the demonetisation of high denomination currency in 1946 and 1948.

In 1946, Rs 9 crore, of the Rs 140 crore in circulation, were converted, while the figures for the 1978 schemes were Rs 20 crore of the Rs 165 crore in circulation.

The Voluntary Disclosure Scheme (VDIS) 1951 yielded Rs 11 crore by way of tax. Again, between 1951 and 1975, there were four more voluntary disclosure schemes. Under VDIS 1975, 1.15 lakh people disclosed income to the tune of Rs 744 crore, yielding Rs 241 crore by way of tax.

The 1981 scheme was under the Special Bearer Bonds, Immunities and Exemption Ordinance Act. The main features of the scheme were 10-year bonds valued at Rs 1,000, which on maturity would yield Rs 12,000 each. The response to this scheme was not encouraging.

Then there was the amnesty scheme of 1985, under which Rs 700 crore were collected over a period of one year. In 1991, Manmohan Singh had introduced several such schemes, namely the National Housing Bank Deposit, Foreign Exchange Remittance Schemes, the India Development Bonds and the Gold Bond Schemes.