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BREAKINGVIEWS- India illustrates fraught tax amnesty economics
October 3, 2016 / 3:07 AM / 10 months ago

BREAKINGVIEWS- India illustrates fraught tax amnesty economics

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Una Galani

HONG KONG, Oct 3 (Reuters Breakingviews) - Tax amnesties are a tricky business. Indians have declared $10 billion of assets in a four-month long scheme to widen the tax base. A high penalty means New Delhi will pocket almost as much revenue as Indonesia, where locals have just declared about $250 billion in three months. In the long term, using more carrot and less stick is probably more valuable to a nation's finances.

India set a penalty at a whopping 45 percent. So the scheme will net more than $4.5 billion in a country where just 1 percent of people pay tax at the last count. India has previously offered lower penalties, though not in a significant way since 1997. By contrast, Indonesia charged as little as 2 percent - meaning Jakarta will bag just $7.5 billion.

Both countries will welcome the one-off boost to strained public finances. The long-term benefits, though, stack up better for Indonesia. India's punitive charges probably means a lot of undeclared money remains stuffed under mattresses or converted into gold bars.

In contrast, Jakarta is effectively giving rich tax dodgers a free pass - something that has prompted protests. But it learns a lot more about where money is stashed at home and overseas. If that information is used wisely, Indonesia is better placed to permanently widen the meagre tax base.

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- Indians have declared cash and other assets worth 652.5 billion rupees ($9.8 billion) in a tax amnesty, the income tax department said on Oct.1.

- The department said that the final figure would probably be revised upwards as authorities count the remaining filings in the four-month-long "Income Declaration Scheme", which closed on Sept. 30.

- Cash and assets declared under the scheme are subject to a penalty of 45 percent after factoring in taxes and surcharges.

- For previous columns by the author, Reuters customers can click on


Editing by Quentin Webb and Katrina Hamlin

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