Need other changes to tackle black money, not SIT
Given that, as The Indian Express reported earlier this month, the UPA government’s finance ministry had concluded that its R1.16 lakh crore tax evasion case against Pune stud farm owner Hasan Ali ‘may not be sustainable’, it is ironic that the newly-constituted Special Investigation Team (SIT) into black money should have the mandate of, among others, bringing the Hasan Ali case to fruition. Though it is true the Supreme Court had mandated the government to constitute the SIT, BJP leaders such as LK Advani have long been convinced of the hoards of black money stashed in Swiss vaults. While Advani put the number at $462 billion, yoga guru Ramdev put it at an astonishing $8.8 trillion.
The government, for its part, will do well to not get distracted too much by the SIT. For one, as the study done by the National Institute of Financial Management for the Central Board of Direct Taxes estimated, India’s black economy has been reducing over the years, and is around 17% of GDP today, not the 42% projected by some global agencies. That this should be the case is obvious since, with rationalisation of tax rates, compliance has increased across the board. Indeed, were the government to move to flatter structures across all categories of taxation, compliance will go up even more. Greater use of computerised filing, to cite another method, increased service tax compliance dramatically—once the computer rejected service tax applications of firms whose vendors didn’t have service tax numbers, this put pressure on compliance down the line. Similarly, just as VAT improved tax compliance for sales taxes, moving towards a GST will increase this even further since, with computerised networks, there are few transactions that will be outside the purview of the taxman. Indeed, persuading states to lower property taxes, for instance, will help curb black money in real estate, a sector in which, most agree, the bulk of black money is generated. While the SIT goes about chasing after money in Swiss vaults, the government would do well to keep in mind that India’s most successful amnesty scheme VDIS-97 unearthed only R33,000 crore of black money—just increasing the tax-to-GDP levels by 0.3%, a fairly simple task, will generate a lot more taxes today.