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[NEW DELHI ] After saying India had enough illicit funds overseas funds to buy everyone a new car, Prime Minister Narendra Modi has so far only recovered enough to get them a scoop of ice cream.
India brought in about25 billion rupees(US$385 million) from a three-month window that ended last month before penalties increase on funds stashed abroad to avoid tax, known locally as black money. That amounts to 20 rupees for every Indian, far short of the 2 million rupees per person that Mr Modi said was possible while campaigning last year.
What's more, tax experts say that Mr Modi isn't likely to bring in much more under the legislation designed to recover as much as $1 trillion estimated to have been sent abroad over the past five decades. India has long struggled to bring in enough revenue, leaving it with one of the widest budget deficits among the largest emerging markets.
"This is just more groping in the dark," said Anil Harish, a partner at DM Harish & Co in Mumbai, who has some clients under investigation for concealing funds overseas. "What they have to do is create a friendlier environment for those people who actually want to bring back their money, while doing a better job of broadening their existing tax net to prohibit people from illegally sending their funds overseas in the first place."
Clamping down on black money has long been a hot topic in India. Mr Modi and members of his ruling Bharatiya Janata Party have accused the Gandhi family dynasty, which has ruled India for most of its history, of holding black money in Swiss bank accounts. The Gandhis deny the allegations.
"If we bring back those rupees then each and every poor man in India will get 1.5 million to 2 million rupees for free," Mr Modi said at a rally in Jan 2014, before he won India's largest lower-house majority in 30 years. A year later, Amit Shah, president of Mr Modi's ruling party, said the remark shouldn't be taken literally.
The amount raised from July to September is equivalent to 0.2 per cent of India's total revenue last year. The total amount recovered was about four times less than another tax amnesty program in 1997.
One reason Mr Modi's approach failed to bring in more revenue was because he approached the problem politically by imposing harsher penalties for hiding assets overseas, said Sudhir Kapadia, National Tax Leader at Ernst & Young in Mumbai. Instead, his priority should be on getting Indian agencies to better enforce existing laws.
Key elements of the new law include: * A tax and penalty of 120 per cent on undisclosed foreign income or assets, up from 35 per cent for companies and 30 per cent for individuals * Repeat offenders can face as much as 10 years in prison and a fine of up to 10 million rupees The government's efforts to share information on overseas bank accounts with other countries such as Switzerland means it'll become harder to stash funds abroad, said Rakesh Nangia, managing partner at Nangia & Co. in New Delhi, who has advised clients on disclosing assets.
"I don't see much impact of the declarations on this year's tax collections," Nangia said. "But I definitely believe the new Black Money Act will be a serious deterrent for generation of black money in future."
Fundamentally the issue comes down to politics, said Arun Kumar, author of "The Black Economy in India." Political parties use black money to fund constant state and national election campaigns, he said, while vows to crack down on its use still appeal to voters.
"Efforts have been made since 1948 to check black money, but it has only continued to grow," said Mr Kumar, referring to India's first full year as an independent country. "The problem really is political and unless there's political will, this can never be resolved."