Budget 2021

Budget idea that worked: VDIS

| Updated on February 01, 2018

Priyanka Pani

Mumbai, January 31

Who did it: P Chidambaram

When: 1997

Impact: Over 350,000 people disclosed their income leading to revenue of Rs 7,800 crore for exchequer.

Flushing out black money from the system has been the top priority of successive Governments. But it was the Voluntary Disclosure of Income Scheme (VDIS) introduced by then Finance Minister P Chidambaram in 1997 that laid the foundation to many such subsequent schemes.

Under the scheme, any person hoarding undisclosed assets (gold, cash and real-estate) would attract a tax of 30 per cent and no penalty. The scheme, in which a defaulter was not required to disclose the source or tenure of assets, turned out to be a huge success as corporates and individual hoarders were able to legalise their black income by paying a mere 35 and 30 per cent tax respectively.

“It was indeed a huge success that year (1997-98). Almost over Rs 10,000 crore was collected through VDIS which was far more than what was recovered in the past,” said H P Ranina, Corporate Tax Lawyer at the Supreme Court of India

According to data provided by Grant Thornton Advisory Private Limited, over 350,000 people disclosed their income and assets under this scheme, which brought a revenue of Rs 78 billion or Rs 7,800 crore ($1.2 billion) to the Indian finance ministry in just six months. The scheme was closed on 31 December 1997.

Riaz Thingna, Director, Grant Thorton Advisory Private Limited told Business Line that, “The VDIS was a very unconventional but successful step among Indian economic policies.”

He further added that the reason why it became so popular was that it gave an opportunity to the Income or wealth tax defaulters to disclose their undisclosed income at the prevailing tax rates and also ensured that the laws relating to economic offences would not be applicable for those defaulters.

However, the Comptroller and Audit General of India condemned the scheme as a fraud on genuine and honest tax payers. Following this, the Supreme Court of India observed that such schemes should be avoided in future by any government.

According to tax experts, amnesty schemes are deterrent to the economy and also is prejudiced against the honest tax payers of any country.

“The 70 per cent tax on disclosures has seen a very limited success as offenders would not want to lose all the assets,” Thingna said adding that this was also a major reason why the Government came up with the idea of demonetisation followed by Income Tax notices and raids.

Published on February 01, 2018

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