After VDIS what?

There is more than one good reason for the smile on the face of the Finance Minister. The most optimistic assessments of the Voluntary Discl...

There is more than one good reason for the smile on the face of the Finance Minister. The most optimistic assessments of the Voluntary Disclosure of Income Scheme fell well short of the actual Rs 10,050 crore collected in taxes. So a considerable part of P. Chidambaram’s pleasure as he announced the figure must have come from watching jaws drop in astonishment. Many Finance Ministers have tried without much success to tease black money out of the system. Chidambaram has done better because there is vastly more undisclosed income to tap today. It is now clear that in this age of computerised data-gathering many tax-evaders saw the wisdom of taking advantage of the lowest-ever penalties (a mere 30 per cent for individuals and 35 per cent for corporates). Third, after a confused start, the income tax department came to life, encouraging, instead of obstructing as usual, the process. The outcome is a healthier looking fiscal deficit, the restoration of capital expenditure cuts and a bonanza for State governments next year.

In practical terms the VDIS has been a resounding and sorely needed success at the end of a dismal year for the economy and the exchequer. But the euphoria will be short-lived. The scheme helps this government paper over its financial difficulties; the next one will be left with several unsolved problems and hard decisions. Subsidy-cutting, resources for investment in infrastructure and public sector disinvestment are the major ones. Nor can another government hope for a windfall from new tax amnesty schemes. Even though the VDIS has not unearthed the bulk of undisclosed incomes, it is clearly a one-off low-penalty scheme which cannot be replicated. It is as well to recognise that the real prospect of the taxman catching up with them was a major inducement for hardened tax evaders to take the first step towards becoming law-abiding citizens. Instead of throwing away that psychological advantage by succumbing to the temptation to mollycoddle tax evaders again, the government should make good its promise to enforce tax laws. It has been shown that the income tax department can function efficiently and diligently with the appropriate supervision from the top. This must continue.

The least long-suffering and dutiful tax-payers would expect is that the tax burden is fairly distributed by widening the tax net. Giving regular assessees priority in certain areas (such as the purchase of first class tickets on the production of PAN numbers) may be well-meant but is a minor matter. No one asks for rewards for doing what the law requires them to do. But everyone needs to be assured that there is one law in the land and exceptions in income tax laws are a thing of the past. No amount of appeals to pragmatism can take away the fact that successive governments have been less than even-handed when it comes to dealing with undisclosed income or those sectors of the economy which escape taxation altogether. These issues which will linger long after the VDIS windfall is over are what the next government will have to address.