NEW DELHI • Before a four-month window to declare undisclosed assets ended yesterday, Prime Minister Narendra Modi had asked officials to work into the night to handle a last-minute rush of declarations.
Black money, a colloquial term for income that has illegally escaped taxes, has been a hot political issue in India - wealth management company Ambit Capital has estimated the country's black economy at 30 trillion rupees (S$615 billion).
Mr Modi struck a chord with 1.3 billion Indians in the 2014 national polls by promising to give the impoverished as much as 2 million rupees each from such funds stashed abroad. But a one-time chance to come clean on the foreign funds led to declarations of only about 25 billion rupees in tax last year.
"What is probably stopping people is the 45 per cent tax they have to pay instead of 30 per cent (plus surcharge)," said Mr Amarpal Chadha, a partner with EY India, a unit of one of the world's biggest accounting firms.
"The government has clarified enough it won't take any action against the people who make declarations. Despite that, we have not seen a huge response."
A jack-up in tax revenue through voluntary disclosures of secret assets would help Mr Modi improve India's dismal tax-to-gross domestic product ratio as he seeks to narrow one of Asia's widest budget deficits. It would also help him score some political points, especially before the assembly elections in India's most populous state, Uttar Pradesh, next year.
The government has tried everything from threatening advertisements to talks with corporate executives to make people declare their undisclosed funds. As less than 5 per cent of people in India file tax returns, it will have to put in extra efforts to catch the offenders.
A panel appointed by India's Supreme Court this year recommended a ban on cash transactions exceeding 300,000 rupees and limiting cash holding with a person to 1.5 million rupees.
"Once generation of black money is curbed, the growth rate of the economy will also start rising," said Mr Rakesh Nangia, a managing partner at tax consultancy firm Nangia & Co.
"Like many election promises, the one about returning black money too was an empty one," said Dr Nikita Sud, associate professor of Development Studies at the University of Oxford. "Where does ever-increasing election expenditure come from?"
Mr Modi's Bharatiya Janata Party spent about 7 billion rupees in the 2014 polls in what was estimated to be the most expensive election in the country. The main opposition Congress Party, which saw one of its worst defeats, spent 5 billion rupees.
"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 of the foreign undisclosed assets at a rally before the 2014 election.
A year later, what he received amounted to 20 rupees for every Indian. Mr Amit Shah, president of Mr Modi's ruling party, said Mr Modi's remark should not be taken literally.
"It is unfortunate that elections, including the most recent one, are fought on vacuous claims," said Dr Sud.