Tuesday’s strike on black money will make every other step so far look like loose change, but the Narendra Modi government has run a sustained campaign against it since coming to power in May 2014.
Setting up of SIT
Modi’s first day in the government as Prime Minister was marked by the setting up of a Supreme Court monitored special investigation team (SIT) to address the menace of illegal money. The SIT asked the investigations agencies -- Enforcement Directorate (ED) and Directorate of Revenue Intelligence -- to take action against companies claiming duty drawback without repatriate export proceeds. It also asked the Reserve Bank of India to develop an institutional mechanism and IT system to red flag those cases where exports have been outstanding in violation of FEMA guidelines. The SIT also recommended a ban on cash transactions above Rs 3 lakh and sought a cap on cash holdings of companies and individuals at Rs 15 lakh, creating ripples among traders.
Renegotiation of tax treaties
The Modi government undertook the renegotiation of tax Treaties and automatic information exchange agreements with various tax havens including Switzerland and Mauritius. The government also negotiated an Automatic Information Exchange Agreement with Switzerland. Under this agreement, India will be able to receive financial information of accounts held by Indian residents in Switzerland on automatic basis from 2018.
The government has renegotiated the Double Tax Avoidance Agreement (DTAA) with Mauritius to impose Capital Gains Tax if such Capital Asset is situated in India.
Black Money Bill
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act was introduced in May 2015 to bring back illegal money stashed abroad. However, this measure failed to elicit the kind of response the government was expecting.
Income Disclosure Scheme
This year, recently the government came up with the Income Disclosure Scheme, a one time opportunity was provided to all those with illegal money to come out clean. A sum of Rs 65,250 crore worth unaccounted money was disclosed in the form of cash and other assets during this four-month window and an estimated Rs 30,000 crore will come to the government in the form of tax.
The government increased seizures of concealed cash and jewelry several times.
Goods and Services Tax
Last but not least, the goods and services tax (GST ) is not merely an indirect tax reform. There are people who understate income by not reporting every transaction to ‘save’ excise, VAT, Octroi etc. Since GST will have a paper trail which can be accessed by the income tax department, it will discourage generation of black money in the system.