Editorial
Forking up undisclosed income
Careful stipulations needed
The Centre for Policy Dialogue (CPD) has reacted to a reported government intention to allow whitening of undisclosed money in the next budget at a 10 percent flat tax rate. The think-tank is in principle opposed to such a move.
This has been a much debated issue, basically getting nowhere. No clear-cut answer has been found to the problem. Every government ends up trying to nibble at the mountain of black money that is shrouded in mystery, irrecoverable and defiant of the law's grip.
We endorse the CPD's view that whitening black money at a flat rate of interest amounts to rewarding tax evaders and punishing the conscientious tax-payers. It is discriminatory, morally indefensible and economically an unsound proposition.
Nevertheless, 'the proposal may be considered in light of stagnated investment environment and to attract new investments' provided that certain conditions are met. First, flat tax rate of 10 percent is too light and slender a requirement for the big concession being allowed to undeclared income-holders. Therefore, to match the degree of offence committed by black money possessors, they would have to pay a higher tax including additional penalty tax. Secondly, amnesty to declare black money should not be open-ended; there should be a clear-cut closing date; otherwise it will make light of the whole move.
Experience has shown that the previous initiatives of governments allowing for legitimisation of black money had failed to mobilise additional revenues and investments, at least to the desired extent.
The rate at which the tax will be fixed and the timeframe for coming out with black money will have to be determined through consultation with NBR and think-tanks. Then the questions comes of investing the white money in proper areas under strict auditing so that it is not diverted to serving any uneconomic agenda.
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