Voluntary disclosure for foreign assets

G. KARTHIKEYAN | Updated on November 15, 2017

The voluntary disclosure scheme brought Rs 7,800 crore inadditional revenue to the government.


Setting aside the morality of the idea of allowing tax evaders to escape criminal prosecution, offshore voluntary disclosure will attempt to put illicit funds to good use.

Mr X, an industrialist, constantly looks out for news items for a possible offer of a Voluntary Disclosure scheme by the Government, especially involving offshore assets. Mr X has funds stashed away in tax havens such as Switzerland, and is aware that he is incorrect in not disclosing the income abroad. No doubt, any voluntary disclosure scheme not only reduces the morale of the honest tax payers, but also gives a signal to dishonest ones that they can wait for the next voluntary disclosure scheme. India has witnessed no less than three voluntary disclosure schemes in the past three decades. The last such offer, the Voluntary Disclosure of Income Scheme (VDIS) 1997, was conceived to fight internal black money generation — an unconventional, but successful tool.

More than 350,000 people disclosed heretofore undisclosed income and assets under the scheme, and brought Rs 7800 crore in additional revenue to the government. Though it was considered a successful scheme, it must be mentioned that it was criticised for putting the rationale of timely and honest tax payment to question.


Apart from India, many countries, such as the US, UK, Germany, France, Portugal, Israel, Greece, and South Africa have introduced voluntary disclosure programmes in the past, and some of these countries have done it more than once. Also, a majority of these voluntary disclosures were offshore programmes aimed at bringing back funds stashed outside the country. In this context, it is relevant to go through the details of two such amnesty programmes introduced by one of the biggest economies — the US, that too within a short span of three years. The first was called Offshore Voluntary Disclosure programme 2009, and the second, Offshore voluntary Disclosure Initiative 2011.

As per US Treasury rules, it is mandatory for all its citizens to disclose annually the details of financial accounts held abroad. Additionally, any income from these accounts must be disclosed in the tax return. The Bank Secrecy Act regulations requires that all US citizens with foreign accounts file Form 90-22.1 – Report of Foreign Bank and Financial Accounts (FBAR), if the taxpayer has an interest in, signature or other authority over, one or more bank, securities, or other financial accounts in a foreign country, with an aggregate value of more than $10,000, at any point in a calendar year.

The penalty for failing to file an FBAR includes comprehensive civil fines, imprisonment of up to 10 years, or both.


The Internal Revenue Service (IRS) came out with the first voluntary disclosure programme during 2009, and the subsequent one during February 2011. The latest disclosure required that taxpayers file 8 years of back tax returns, reflecting unreported foreign source income, calculate interest and penalties each year on unpaid tax, and apply a 25 per cent penalty on the highest balance of the undeclared financial accounts in the past eight years.

As many as 16,550 taxpayers availed this amnesty opportunity to avoid criminal prosecution. The very fact that the penal provisions, even under amnesty, are harsh, acts as a deterrent, and makes most taxpayers toe the line in future.

None of the past amnesty programmes in India had harsh penalties or steep tax rates unlike other countries, but the Indian Government was able to collect some much-needed revenue. Though the current scenario has enabled the Government to fix tax evaders with reliable data and with favourable clauses introduced in the Double Taxation Treaty with Switzerland etc., unless a strong political will is demonstrated, desired funds stashed overseas may not be easily brought back.

Setting aside the morality of the idea of allowing tax evaders to escape criminal prosecution, such offshore voluntary disclosure (with a high tax rate and penal provisions) will attempt to bring back illicit funds to put them to good use, rather than losing them altogether. With a slowing economy in the backdrop, much-awaited infrastructure projects need to have funds pumped in from the fiscal system.

An additional fact that might encourage such taxpayers is the current appreciation of the dollar, which might well offset the penal effect of the disclosures by bringing in more money on conversion.

(The author is a Coimbatore-based chartered accountant.)

Published on January 01, 2012

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