BLACK MONEY AND WHITE LIES

Abhijit Mukhopadhyay is an economist. He can be contacted at abhijitmukhopadhyay[at]gmail.com.

Abhijit Mukhopadhyay

India’s tax compliance rate is very poor – even compared to the emerging economies. Obviously, amount of tax evasion is also quite large, both at individual and business levels. As a result, it is not surprising that black money and black economy always provide headache to the policy makers.

The issue of black money came into prominence due to unprecedented corruption charges leveled against the previous UPA government. Current Prime Minister, who was the aspiring opposition that time, utilised the issue of black money to the hilt by promising to bring back overseas black money stashed in different foreign banks within 100 days if elected to power.

He also mentioned, in his election speeches, the possibility of crediting every Indian’s account by Rs. 15 lakhs if all black money are recovered. A little over 18 months in the office, all those big promises came back to haunt him as his government’s amnesty scheme fails to recover substantial amounts of black money.

Within the stipulated deadline of September 30, 2015, only 644 declarations were made under the compliance window provided in the new anti-black money law – amounting to a total disclosure of Rs. 4,164 crores. The declarants were liable to pay 30 per cent tax and a fine of 30 per cent. The amount received in tax and fine till previous year-end is Rs. 2428 crore.

In 1997, P Chidambaram provided a similar amnesty scheme to illegal wealth holders and collected more than Rs. 10,000 crores taxes out of a total of Rs. 33,000 crore declarations. Indian economy has grown nearly 10 times since 1997, and taking that into account the recent amnesty fetched a very poor response undoubtedly. Prime Minister himself created confusion by mentioning a collection of Rs. 6,500 crores in his Independence Day speech, and the Finance Minister added to that confusion further by saying that the figure quoted by the Prime Minister refers to the notional recovery from ongoing investigations like HSBC and this has nothing to do with the compliance window. However, the actual figures are now there for everybody to see.

AJ

The Prime Minister, Shri Narendra Modi launches the Gold schemes, in New Delhi on November 05, 2015. The Union Minister for Finance, Corporate Affairs and Information & Broadcasting, Shri Arun Jaitley, the Minister of State for Finance, Shri Jayant Sinha, the Minister of State for Commerce & Industry (Independent Charge), Smt. Nirmala Sitharaman and the Secretary, Department of Economic Affairs, Ministry of Finance, Shri Shaktikanta Das are also seen. (photo courtesy: FM Arun Jaitley’s Facebook Page )

Providing amnesty schemes periodically to black money holders has been a very disturbing trend in India as it encourages more hoarding and stashing of illegal money. Apart from the moral or ethical point of view, it also provides a sense of impunity to the illegal wealth holders. Building up a full proof tax collection net is probably the only answer. But, is the current regime doing that?

The answer, till now, is in negative. To begin with, HSBC premises in Mumbai were raided in February and apparently no “incriminating evince” was found, while France, Belgium and Argentina have slapped criminal charges on the bank for tax frauds in individual banking accounts. Secondly, the whistle blowers are neither protected nor incentivised. While internationally it is accepted that inside information is one of the major ways to unearth illegal money, why our government is not yet creating a simple law protecting and rewarding insiders reporting corruption and evasion?

Local banks are also not immune of this vice as there have been allegations of siphoning off money by their offshore branches. The penalties for violating anti-money laundering norms are too small and not effective deterrent. A clear-cut policy, stating a hefty rate of penalty, is the need of the hour if such illegal digression and money laundering have to be stopped.

It is an open secret that power elite is always complicit with the big business. If that is so, then why cannot we just ban or limit election funding of political parties from corporates? Brazil’s apex court, in recent times, banned money donations from corporations for election campaigning. If the present government is serious about stopping all kinds of illegal accumulation and flow of money, as it claims so often, it should at least limit corporate funding of the political parties immediately.

Bilateral treaties, like avoidance of double taxation, were also under fire when the previous UPA government was in its final lap. BJP, then in opposition, lampooned some of those treaties by saying that those are useless and cannot bring back black money from abroad. However, recently signed treaties under the present government probably can also be criticised on similar lines as no visible information or result is available for illegal money recovered back to the country.

In 2011, on the recommendation of the standing committee, UPA government appointed three government affiliated research think tanks, including National Institute of Public Finance and Policy (NIPFP), to make an estimate of unaccounted illegal incomes in the country and abroad. The task also included pinpointing at the causes of such black money generation. It is reported in media that those submissions have been done almost a year back now to the government. But the reports are yet to be submitted in the parliament, and one wonders why.

All these show a familiar but distinct disinterest shown by the present regime to address the issue of black money. Corruption and black money are handy issues while in opposition, but those are always put in the back burner while in power. Without proper policies and concrete steps taken to unearth black money and utilising them for greater good of the nation – all talks of “na khayenge, na khane denge” or “no one dares to send money abroad now” will keep on sounding rhetorical and very hollow.

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