NEW DELHI: When an Indian deadline for declaring illegal assets expires Wednesday, billions of rupees hidden in foreign bank accounts or funneled into property abroad will emerge into the light — or so the government hopes.
Prime Minister Narendra Modi took power last year pledging to crack down on the “menace” of so-called black money — vast piles of wealth kept secret from the tax authorities — with a battalion of new measures.
A three-month window ending on September 30 allows tax evaders to declare their stash and pay a softer penalty, with immunity from prosecution, or risk up to ten years in jail if they get caught.
“The era of tax havens has come to an end. It is no longer safe to keep your assets overseas illegally,” Finance Minister Arun Jaitley said in May, shortly after the Black Money Act was passed.
But the challenge of cajoling back into the economy the $439.59 billion that fled India illicitly from 2003-2012, according to estimates from the Global Financial Integrity group in Washington, is dizzying.
India is one of the most cash-intensive societies in the world, corruption is endemic, and strict tax laws encourage people to keep money off the official books.
The wealthy channel money to tax havens such as Switzerland or Singapore, convert it into jewelry, antiques, paintings or property, or send a relative abroad for half the year to avoid tax.
“The intention is clearly to target Indian citizens who have stashed wealth overseas and want to come clean,” Sonu Iyer, partner for India tax services at EY (Ernst & Young) said of the declaration window.
“It is a warning before the government brings in a very harsh law.”
The Black Money Act is the latest in a widening crackdown by India’s government, which has set up a team of regulators and ex-judges to identify illicit account holders and repatriate hidden funds.
It has started bringing in biometric identity cards tied to bank accounts and last year handed a secret list of 627 people suspected of concealing money abroad over to the Supreme Court.
The tough stance comes as the global net tightens on tax evaders, with new information-sharing accords between countries and even secretive Switzerland releasing the names of suspect account holders in May.
“Those days when people could hide things abroad and think they will never be found out are largely behind us,” V. Anandarajan, Joint Secretary of the Central Board of Direct Taxes, told a forum last week.
On the domestic front, targets for investigation include temples and ashrams, where lavish donations can be a front for money laundering, and cricket betting.
The property sector too is awash with black money, with analysts saying cash is a component in most transactions.
“Realty is one area where black money is huge. Politicians, investors, entrepreneurs park money, then cash it out later,” Pankaj Kapoor, managing director at Liases Foras, a real estate research firm in Mumbai, told AFP.
But the Black Money Act and another new law that seeks to stop properties being acquired in another person’s name have spooked buyers, with sales already taking a hit, Kapoor said.