The year 2016 can well be labelled as the domestic black money retrieval year that saw the government follow a carrot-and-stick policy, nudging hoarders to come clean on their own by paying a penalty before the Income Tax Department showed the stick.

The Income Declaration Scheme-2016 (IDS-2016) launched from June 1 for four months allowed people to declare their unaccounted income by paying a 45 per cent tax and assuring them of complete secrecy and no prosecution -- before the demonetisation surprise was hurled.

"One can say that the government's attempt was to follow a carrot-and-stick policy. The government gave an opportunity to people holding unaccounted money to disclose their wealth and come clean by paying a 45 per cent tax (inclusive of penalty and surcharge) under the IDS before the demonetisation move," Girish Vanvari, Head of Tax, KPMG in India, told IANS.

Multiple comparisons were made of the IDS-2016 with the earlier Voluntary Income Disclosure Scheme (VIDS) brought during the time of former Finance Minister P Chidambaram in 1997 in which the effective rate of tax was in single digits.

In IDS, after final reconciliation, the actual declarations received and taken on record were Rs 67,382 crore made by 71,726 declarants. IDS-2016 is expected to fetch over Rs 30,000 crore in direct tax revenue to the government while the Voluntary Disclosure Scheme of 1997 resulted in disclosure of Rs 33,000 crore and collection of Rs 9,760 crore worth of taxes.

The IDS required the declarants to pay 25 per cent of the tax in the first tranche by November 30, another 25 per cent by March 31, 2017 and the remaining by September 30, 2017.

Interestingly, the government did not take into account two high-value disclosures made in IDS suspecting foul-play, which later saved it embarrassment as those payments never actually came.

The Rs 13,860 crore declaration by Ahmedabad-based Maheshkumar Champaklal Shah, and a Rs 200,000 crore declaration made by Abdul Razzaque Mohammed Sayed, resident of Mumbai, proved false. As expected, the two declarants did not make any payment by November 30, the last day to pay the first installment of the tax under IDS.

"The government did well in being cautious and not including those declarations in the IDS disclosures figures that were made public. Had the government included the same in the estimated tax collection and if they had not materialised, they would have cut a sorry figure. One may say that the government's prudence paid off in this case. We believe that there would be investigations and appropriate punishments in these cases," Vanvari said.

The intention of IDS clearly was to bring into the tax net unaccounted money and give an opportunity to tax evaders to come clean albeit with a higher tax and penalty. The message that the government probably wanted to give to the public at large was that it pays to be an honest taxpayer and that defaulters would be punished.

But whether the IDS was a success or not will be determined by what the government actually manages to garner against the expected Rs 30,000 crore. Official figures on collection of the first tranche of 25 per cent tax are still awaited. Some reports suggested that the amount declared could go way below the earlier estimate of Rs 67,382 crore as more declarations are likely to turn bogus.

Whatsoever, it does appear that the IDS could not make a big impact in unearthing black money and hence was followed by the demonetisation move and subsequent amendments to the Income tax Act to achieve the objective.

The amendments to the Income tax Act were brought after that to impose a 75 per cent tax on undisclosed wealth along with a penalty of 10 per cent taking the total outgo to 85 per cent.

The intent of this -- effectively a new disclosure scheme -- was obviously to penalise defaulters who did not come clean in spite of the opportunity provided by the earlier IDS Scheme by levying an 85 per cent tax (including penalty). However, the government chose to give them another chance to come out clean by introducing the Garib Kalyan Yojana Scheme, though at a higher cost.

"The government thought that the people have taken IDS lightly but demonetisation may make the tax evaders re-think about continuous evasion. In the wake of demonetisation the second chance to black money hoarders appears to have been given," Pune-based chartered accountant and analyst Pritam Mahure told IANS.

The Garib Kalyan Yojana -- which opened on December 17 and will close on March 31, 2017 -- gives an opportunity to people to disclose their income and pay 50 per cent tax while locking in another 25 per cent of the declared income for four years.

Though many questioned the motive behind giving another chance to the black money hoarders, Vanvari said, "It's a win-win since it is expected to shore up the tax collections which can be channelised into priority sectors and the declarant would also be left with legitimate funds in his hands."

However, some analysts also felt that too many chances to the black money hoarders may demotivate the honest taxpayer.

"It was a good move of the government. However, regular temptation of such schemes should be at best avoided as it incentives the tax evader and demotivates the honest taxpayer," Mahure said.