This has got to be the biggest hoax perpetrated by the country's Left parties. While proclaiming they're anti-capitalist and in favour of the small guy, they're actually in favour of schemes that could reduce tax rates to as low as 2-3 per cent on the really rich!
Tucked away in the middle of the Common Minimum Programme supported by the Left parties is an innocuous line that says 'special schemes to unearth black money and assets will be introduced.'
Since this is something the Left also supported in the United Front government, and VDIS 1997 was one of India's most successful black money schemes, few have paid serious attention to this line in the CMP.
Well, they'd be advised to read the Comptroller and Auditor General of India's report on just how the VDIS scheme was serially abused, and the reason why the scheme was a runaway success was not because it was brilliantly designed, it was a success because it gave tax evaders and thieves (what else would you call 'cobbler scam' and 'hawala' accused who participated in it?) the best deal they'd ever got.
If you're favourably inclined to the government, the best that can be said was that the scheme was laxly run, and if you're not, you could say the scheme was deliberately designed to be the way it was. And no, no one has been held to account for this, at either a senior or a junior level.
To begin with, unlike any other amnesty scheme, VDIS 1997 allowed tax evaders to choose the price at which they wanted their assets valued.
While all schemes in the past said the assets declared were to be valued at current prices, VDIS 1997 brought in an arbitrary date of April 1, 1987 -- any jewellery acquired before April 1, 1986 was to be valued at prices prevailing on April 1, 1987 and any jewellery bought after this was to be based on the acquisition cost.
The choice of the cut-off date was strange since the scheme was introduced in 1997, and in the decade in between, gold prices had gone up by 84 per cent and silver by 53 per cent. Just introducing this simple change allowed tax evaders to lower their tax liabilities around 45 per cent in case they decided to declare their assets in the form of gold.
So, instead of a 30 per cent tax rate, the rate would come down to around 16 per cent! According to the CAG, this helped reduce the tax payments by between Rs 1,247 crore (Rs 12.47 billion) and Rs 1,965 crore (Rs 19.65 billion) depending upon whether the jewellery declared was shown to be in the form of silver or gold.
Of course, what happened was even worse than the carelessly designed law envisaged. For one, there was no proof of purchase to be given, except for an affidavit by the tax-evaders themselves.
So, even if gold was bought after 1987, it could be shown as having being bought before 1987. This is where the tax officers stepped in to make things better.
While the law said jewellery purchased in 1971, for instance, would have to be valued at the price on April 1, 1987, tax officers accepted the 1971 price as the correct one.
So, if you bought gold in 1997 (the year of the scheme), not only could you say you bought it before 1987 to reduce its valuation (for tax purposes) to around half, you could reduce it even further by saying you bought it in 1971, or 1961, even 1951!
The CAG found there were 113 cases where the gold declared was valued at 1961 prices, in another 21,128 cases the value was taken as that before 1967-68, and so on even though the law did not allow this.
Interestingly, the government clearly realised this was happening, and on November 25, 1997, a circular (No 296/31/97-IT Inv III) addressed to various commissioners of income tax said, "a large number of taxpayers (have) been misusing the provision and declaring unusual quantities of silver utensils, gold coins stating that they have been acquired long back apparently in an attempt to reduce the tax burden", and it directed the tax officials that the valuations should be based on prices on April 1, 1997 if there was no satisfactory proof given by the assessee.
Well, on January 22, 1998, another circular was issued asking the taxmen to issue certificates in all cases, never mind if the declarations were of an "unusual" nature!
The policy of declaring black assets held in the form of property was even more curious, and no proof of purchase or valuation was asked for -- so, in Kolkata and Mumbai, you've had property being declared as being worth the princely sum of Rs 5,530!
Okay, so VDIS 1997 was designed and implemented to give tax evaders a great deal (even those, like the cobbler scam accused, who were not legally permitted to use the scheme were allowed to do so), but how does this help reduce tax levels to 2-3 per cent now?
Because, even if finance minister P Chidambaram does bring in VDIS 2004, it can't be used for the current year, so you'll still have to pay 30 per cent tax rates for the current year.
Not really, for the CAG found that people had declared zero income (and even losses) in their regular tax assessments for 1997-98 while their VDIS declarations showed incomes for the same year.
So, if you're a habitual tax evader, or just someone who wants to reduce your tax payments, just cross your fingers and hope for a VDIS 2004 that's as loosely designed/implemented as its predecessor.