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Friday, 20 March 2015 05:17
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Preventing new black money should be the goal

Given the large number of tax information-sharing agreements India has signed with various countries—13 of them have been signed already—and the global crackdown on tax havens, as well as the specific agreements with the Swiss to provide information on cases being investigated by the Indian taxman, it is not surprising the government wants to have another crack at getting the large amounts of Indian black money that is allegedly stashed overseas. How successful this will be, of course, remains to be seen. For one, despite the new black money Bill being cleared, there is not that much more in it in terms of powers for the taxman. The 30% tax rate and 300% penalty for undisclosed foreign income, for instance, is a provision in the statute even today, as is the provision for rigorous imprisonment of up to 7 years—the provision to mandatorily disclose any foreign bank accounts and assets to the annual income tax returns of resident Indians was added last year.

What has now been done is to include these offences under the Prevention of Money Laundering Act (PMLA) as well as the Foreign Exchange Management Act (FEMA)—this will make the attachment of assets easier, though there is a view even the Income Tax Act also allows attachment of assets. What is important, however, is to understand that if black money has not been caught so far, mere promulgation of a new law, or a limited amnesty under it, isn’t going to help either. Indeed, it is worth keeping in mind that India’s most successful amnesty scheme, VDIS 1997—that was also riddled with such loopholes it allowed people to get away with paying taxes at 2-3%—also succeeded in getting just 2.3% of that year’s GDP. That is small change compared to the 30-40% of GDP estimates that are routinely used when talking of the size of the black economy.

While trying to attempt to bring back the alleged stashes of overseas black money, the government would do well to keep in mind it is far more important to address the issue of generation of black money today. If GDP was R100 five years ago, and 30% of it was black, this adds up to R30; given a 15% annual growth in GDP, the black proportion will be R60—in other words, tackling current generation of black money is far more important than catching black money from an earlier period. This is where GST chains and mapping the data from annual information returns with PAN numbers and finding ways to dissuade the use of cash is critical. It would help enormously if the recommendations of the Law Commission on disclosing details of cash donations to political parties was also accepted since this link between politicians and businessmen also needs to be snapped.

 

 

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