India Today Cover Story [VDIS: The Great Disclosure Pg 2]

However, the CBDT functioned like command headquarters in the campaign months. Batabyal travelled to each of the target centres -- 27 big towns, 11 cities and the four metros. Kant addressed the associations of merchants of products ranging from diamonds to spices in Kanpur and Lucknow. Even friendly cricket matches between tax-payers and taxmen were organised across the country. In Delhi, Chidambaram promoted a show-stopper when schoolchildren sported T-shirts that read: "My father pays tax."

Care was also taken to honour the confidentiality of disclosures by curbing slothful officers who allowed unauthorised staff access to documents. Three commissioners, D. Aggarwal and S. Dasgupta in Mumbai and B.N. Singh in Kanpur, were removed from VDIS duties for being careless with the declarations. In Delhi, two assistant commissioners were transferred for questioning declarants. More important, VDIS evolved into a scheme on which, as Singh says, "the Income Tax Department developed a sense of ownership". Ironically, the caretaker status of the United Front Government also added a new impetus to the declaration as there was little fear that politicians might pry into the forms to trade off benefits with future victimisation. To citizens, the bureaucracy, which is now in command, is always the lesser evil.

The scheme offered disclosures represented by cash (including bank deposits), jewellery, gold and silver, investment in shares, debts due from other persons, commodities, or "any other assets". However, cash disclosures topped the list as it was, in the words of Delhi chartered accountant Alok Mittal, "safest for clients". It did not require the identification of bank account numbers or lockers. But cash declaration could hardly offer the "advantage" of deliberate undervaluation that came with real estate and jewellery. Since the declarations were accepted without question for most part of the campaign, the declarants undervalued most non-cash assets, including buildings, and thus drove down the actual cost of laundering to way below the 30 per cent tax rate, maybe at around 18 per cent on an average.

As the prevalent grey market rate of laundering money (through losses in fictitious companies, etc) is also the same, it explains why the public welcomed it. It is also likely that, had the assets not been undervalued for declaration, the real volume of disclosure would have been a good deal more. The Government not only looked the other way but structured the scheme to encourage declaration at any value. "Tax collection is not a morality play," Chidambaram commented on the ethical part of the exercise.

Since VDIS entertained claimed value of jewellery purchased earliest on April 1, 1987, a tendency soon developed to claim purchase on or just after that date and thus launder hoards of more recent gold. Jewellery declaration still required certification from a registered valuer, but there was no such restriction on silver, a metal which has witnessed a steeper price rise than gold -- from Rs 2,720 per kg in April 1981 to around Rs 8,000 now. In Calcutta, an individual claimed to have owned silver utensils weighing 1.25 tonnes. Stung by public criticism, CBDT, on November 25, issued a "clarification" saying that "unusual declarations" were open to verification. A group of chartered accountants promptly challenged the clarification in the Delhi High Court, and the court partially stayed the order, saying that only the post-clarification declarations could be verified.

Subsequent scrutiny by tax officials revealed the seamier side of declarations. In one of the silver cases investigated in Haryana, a woman who'd declared having bought the white metal in 1961 was found to have been born in 1964. Cases were unearthed in Delhi and Hyderabad of fictitious declaration of the precious metals, allegedly with an eye to booking a convenient loss later on the sale of the non-existent asset (the cost indexation table used for tax purposes beats the movement of gold price). T.N. Pandey, former CBDT chairman and a staunch critic of the scheme, says: "The misuse of the scheme happened because the Government allowed it to happen. It finally left the definition of gold and silver declarations incomplete."

However, had VDIS been an isolated experiment geared entirely to augment revenue collections, Pandey's criticism would have been partially justified. But the scheme, with 77 per cent of its earnings promised to the state governments, was hardly a once-only effort by the Centre to somehow fill its depleted coffers. The driving motive of the scheme, as Singh admits, is to help direct taxes emerge as the larger contributor to total tax revenue than indirect taxes like excise and customs duty. The present ratio between the two is 30:70.

The VDIS exercise has, despite its cordial exterior, opened the Government's eyes to potential tax-payers. The run-up to the scheme allowed the it Department to collate a mind-boggling data base on present and potential assessees. Nearly 1,300 farmhouse owners received notices asking them to explain the sources of their income and investments. it officials called the six biggest builders in Delhi to secure information on those who had bought flats costing above Rs 40 lakh in the past year. There is also an ongoing effort to widen the tax net by making the filing of tax returns obligatory for most car-owners and even telephone subscribers. Even a tax-return filed on nil income is a future taxpayer moving into the state's ken.

The VDIS declarations may remain secret, in most cases at least, but the exercise is a step towards closing the Government's information gap on people's assets. This is of importance for a country that has only one out of 88 people on the taxman's files.

VDIS CAMPAIGN: PERFECT PITCH

Last summer, when the Voluntary Disclosure of Income Scheme (VDIS) campaign first blitzed the television screen, few could figure out what exactly was the point that the procession of tax-shy builders, jewellers and doctors was making. Why, for that matter, did the builder wink and say that he would rather not make a gift of his benami property to the Income Tax Department? Moreover, the excuses for tax evasion seemed embarrassingly convincing.

In the weeks to follow, as the Rs 30-crore campaign -- the largest ever in a single year for a public cause -- wove through news programmes, cricket matches, talk shows, even Chitrahaar, and rode out the prime-time clutter, the message started homing in. The excuses, on repeated viewing, began to wear off. The models, instead of sounding smart, appeared like characters out of the bygone days of high tax rates and rampant evasion. The first phase of the campaign, jointly entrusted to HTA and O&M, the country's first and third largest advertising agencies respectively, was a psychological gambit to remove the traditional mental barrier of Indians against the payment of taxes. Begin with the bahana (excuse): HTA Senior Vice-President Sunil Gupta and O&M Director Achin Ganguly had been briefed clearly before they had embarked on the campaign.

By mid-September, the campaign started cascading over a broad swathe of media -- television, print publications, outdoor, radio and direct marketing -- to the "influencer" communities, notably chartered accountants. The pitch of the campaign had by then subtly changed to the "reward" element. The new mantra was to "market" the benefit that inevitably comes with the payments of taxes. Finance Minister P. Chidambaram, Revenue Secretary N.K. Singh, Central Board of Direct Taxes (CBDT) Chairman Ravi Kant, and the board's Member (investigation) A.K. Batabyal sat up for hours at North Block to preview each film and to fine-tune each print copy and radio spot before release. The buzz was: market the scheme in the same way that you market Colgate.

There were indeed "Colgate smiles" at the preview session when the Gupta-Ganguly duo ran their clinching film of the campaign's second phase. It had a woman opening her closet to take a longing look at her jewellery and to regret that she couldn't wear any of these as that would attract the taxman's attention. Pehniye shaan se (wear in style) -- the catchline was greeted with applause. The public recall of the campaign rose as it drew in the celebrities -- cricketer Kapil Dev, sarod maestro Amjad Ali Khan, and film stars like Mithun Chakravarty and Kamalahasan. They endorsed the "reward", which, in this case, is the asset which is whitened after paying the tax.

The countdown to December 31, the scheme's closing date, was a month-long advertising crescendo which alternated the carrot of 30 per cent tax with the stick of 300 per cent penalty and prosecution. The word "prosecution" was pencilled into copy by the finance minister himself. Saroj Bala, the department's director of research, statistics and public relations, says that the cunning blend of fear and blandishment in the final phase resulted from a close study of taxpayer behaviour. If the Government knew the taxpayer's mind, the agencies displayed a rare skill of communicating a public message through forceful words and images.

"We built VDIS as a brand and marketed a concept, that of honouring your wealth," say Gupta and Ganguly, whose agencies are linked not only by a common client but by a common global partner, WPP. The campaign's monetary worth is a negligible 2.5 per cent of the two agencies' annual billing of around Rs 1,200 crore. But, in public interest communication, it is the cause that overshadows costs.

January 12, 1998