It is important to bring back the ill-gotten money stashed away abroad but it is equally important to crush the parallel economy running in the country and adopt different measures to tackle these situations.
Prime Minister Narendra Modi raised the issue of bringing back the black money in his election campaign and he constituted a “Special Investigation Team (SIT)” led by M B Shah, a retired Supreme Court judge to look into this matter. Very recently, the SIT submitted its progress report to the apex court which said that significant developments have happened in this direction and the court was satisfied.
The issue of black money and corruption is not limited to being an economic issue in our country anymore; it has also been given an emotional colour by the new born baby in the Indian politics to project them as a crusader against corruption.
As per the study conducted by US based Global Financial Integrity (GFI) in December 2012, India is among top ten developing countries in the world with an outflow of $123 billion between 2001 to 2010 which highlights the gravity of the problem.
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There are two aspects of this problem- rotten money circulating in our economy and money lying abroad.
Money stashed away abroad- India is an attractive investment destination and it is awidely perceived that the large part of capital inflow in our country is our own money which is coming to us through legitimate channels to give it a legitimate colour. We need to understand the modus-operandi to check this menace.
As per the white paper issued by Central Board of Direct Taxes (CBDT) in 2012, Mauritius accounted for 42 per cent of the FDI equity inflows in 2000-2011. A large chunk of this money is coming to us after “round tripping” which makes it difficult to check the exact source. Besides this, the inflow coming to our country as Promissory Notes (PN) is also growing by the day and it’s said, SEBI has no clue about the source!
Declaring black money as national asset has far reaching implications when we even don’t know where it is lying. To unravel the sources, India should use the global forums like G20 etc. to put collective pressure on the tax havens to share the information: unilateral action would only jeopardise the investment sentiments in the country and would impact the capital inflow. While we continue to put efforts to chase the evaders, we should admit that the ill-gotten money lying in Swiss bank is a known fact to all of us and it would be foolish to imagine that the money is still there even after so much hue and cry on this matter.
Therefore, the first and foremost requisite is to stop the outflow of black money which is mostly in the form of international transactions by corporates, kickbacks in government deals, hawala transactions etc. Secondly the government can also consider announcing Voluntary Disclosure Scheme (VDS) to grant onetime amenity to the evaders and avoid the litigation after charging tax at a higher rate on the disclosed income.The evaders should be provided a final opportunity to come clean.
Congress government announced Voluntary Deposit Scheme (VDS) in 1997 but it drew criticism as the assets declared in 1997 were valued at 1987 price and penalised honest taxpayers for their honesty. Even the CAG criticised the move, so if the current government wants to introduce any such scheme then it is advisable to keep the apex auditor also in the loop.
Money within India- There is a parallel economy running in the country and CBDT admits in the white paper issued by it that “Investment in property is a common means of parking unaccounted money”. Infusion of black money has contributed to sharp rise in land prices and has made difficult for the middle class to afford a house.
A citizen with average national income would invest his 47 years earning to buy a property in New York but it will take 180 years in Delhi (Source: A New Land Price Regime, EPW, April 2013). High transaction rates ranging from stamp duty to commission causes the buyer to under report the transaction and the vicious cycle starts at this point. Stamp duty and property registration falls under the jurisdiction of the state governments and central government alone can’t check it.
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We can deal with tax evasion but the problem is with the enforcement of the law. As per the income tax laws, the onus to prove the geniuses of the transaction rests on the accused but the litigation process is tedious and long.
The money which is in circulation within our own jurisdiction can be checked if central and state authorities put collective efforts. There is a perception that politicians and businessmen can never be brought to book because of lack of political will. The new government has a chance to prove it wrong and improve its image.
Shshank Sourav (The writer is a Chartered Accountant)