“Thirty percent tax and hundred percent peace of mind” was the caption of ads that filled news papers in the country during late 1996. The advertisement was given by direct taxes department as part of VDIS 1996 instructing the black income holders to reveal their income and pay taxes which will make their head straight, without being guilty. People responded positively to the ad after being passive in the initial time.
There is every chance that the Finance Minister may introduce such an amnesty scheme in the new budget to enhance tax revenue. Introduction of the scheme will add glamour to the budget. On the one side, it will be counted by the social reformers as a measure to tackle black money. On the other side, for the government, such a scheme is the most important option for instant revenue mobilization and thus to escape from the current fiscal tightness.
The last amnesty scheme was around sixteen years ago to extract revenue by giving amnesty to the holders of black money. The scheme was named as Voluntary Disclosure of Income Scheme (VDIS) 1996 and around Rs 10000 crores of tax revenue was accrued to the government after individuals and corporate declared black income of around Rs 30000 crores. The VDIS 1996 was the sixth scheme introduced in independent India to convert black money into white money.
Introduction of an amnesty scheme has sound logic now than ever. Firstly,at present, the government is in a difficult fiscal situation. Fiscal deficit target in the current year may well overshoot because of high borrowing made by the government during the year. Besides, the position of the government finances is not going to be improved soon in the next year as well because of projected slow economic growth. Hence, out of the book and temporary revenue resources like an amnesty scheme are necessary for the government to save its position.
Secondly, an amnesty scheme was not introduced during the last sixteen years indicates the revenue opportunity for the government at present. The 1996 VDIS was the sixth one in thirty five years besides a couple of bearer bond schemes in the 1960s and 70s. Volume of black money is big now according to different estimates. During the last month, the CBI has estimated black money at around Rs 25 lakh crores. Even if the government is able to get only five percent of this amount as taxes, it will be nearly 1.25 lakh crores. Such a windfall gain will make budget making comfortable for the government than adopting pinching tax hikes and painful expenditure compressions.