The Black Money Act, one of India’s sternest laws, is being reviewed.
An internal committee, under a senior Income Tax (I-T) officer, will examine the interplay between the statute and the I-T Act, envisage different scenarios of taxability and their legal implications, points of conflict with I-T regulations, challenges faced in invoking the law, and the handling of the mountain of data received from various countries.
A person familiar with the development said that senior tax practitioners, whose views could be sought, may put across the point that the panel should revisit certain tough features of the law that allow the imposition of stiff fines – far higher than the penalties under the I-T Act, and the initiation of prosecution proceedings for failing to disclose an overseas asset.
The committee is headed by Amal Pusp, Principal Chief Commissioner of I-T for the Uttar Pradesh (East) region, said an official in the tax department. Another internal committee, under Chief Commissioner Jayaram Raipura, will study ways to improve the quality of scrutiny assessments.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (or BMA) came into effect on July 1, 2015. Introduced by a new government that had made anti-corruption a major political plank, the BMA sought to overcome the hurdles in the I-T Act and tax money stashed away in Swiss and offshore bank accounts, discretionary trusts in tax havens, and unlisted companies whose true beneficial owners remain hidden. However, despite the strict provisions of the law, tax recovery under the BMA has fallen short of expectations.
The decision to form the panel was taken earlier this year.
DIGGING UP THE PAST, PUNISHING REPORTING LAPSES
The most serious element of the BMA is the power given to the I-T department to question undisclosed foreign assets acquired decades ago but discovered now. Under the law, the year when the tax department obtains such information is deemed to be the year in which the income was earned by the suspect.
Under the I-T Act, the tax office can go back up to five years to pull up a taxpayer if the escaped income is ₹50 lakh or more; it’s three years if the undeclared income is less than ₹50 lakh. But the BMA can be invoked retroactively to probe income generated (or assets created) well before the law was enacted.
According to an tax expert, “One hopes a pragmatic view is taken and the government reconsiders the presumption enshrined under Section 72(c) of the BMA, which intends to do away with time-barring provisions. The presumption causes grave hardships as taxpayers may be expected to explain sources of very old assets, the records of which may not have been retained in view of substantial lapse of time. The BMA’s retrospective nature has been challenged in writ petitions, especially concerning assets which were not in existence at the time of introduction of the Act.”
Under the BMA, a 30% tax and 90% penalty could put a burden of 120% of the value of undisclosed assets on a taxpayer. Compared with this, the maximum outgo (including fines) under the I-T Act is 90%. Moreover, while a person can be prosecuted under the I-T Act for not paying tax, under the BMA prosecution can be initiated merely for non-reporting of a foreign asset, even if the source of funds is legitimate and the asset was acquired with tax-paid money.
If tax payable by a person is ascertained under the BMA, it is considered a scheduled offence under the Prevention of Money Laundering Act (PMLA). In such cases, tax officials can ask the Enforcement Directorate – which administers the PMLA and investigates foreign exchange violations – to take appropriate action. Shortly after the BMA was passed, the PMLA was modified to incorporate this provision. “The current law requires amendment as it does not have an exclusion provision to give benefit to genuine assessees. The government should target habitual offenders and not residents who have officially earned assets outside India while abroad but failed to disclose them after becoming tax residents of India. There are many such instances, like insurance premiums officially remitted from India but not disclosed,” another tax expert said.
The government, some believe, should come out with a new disclosure scheme. “The 2015 scheme had debarred many willing taxpayers from making disclosures. Prosecution complaints consume time, effort, and resources of taxpayers and the administration. Today, many taxpayers could be willing to settle the cases, which will also result in revenue generation,” he said.
Source #ET
