Catching dodgy money PDF Print E-mail
Thursday, 05 January 2017 03:49
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Limited success in past calls for a brand new strategy


With the bulk of demonetized funds coming back to banks, the government’s best chance of a demonetization bonanza depends on how much money it gets in its new black money scheme IDS-2 and that, in turn, depends on whether those who have laundered their cash frighten easily – if they feel they will be caught, chances are they will seek cover under IDS-2. Certainly, the taxman has reams of data, of the magnitude never seen before. That Rs 25,000 crore or thereabouts came into JanDhan accounts after demonetization is well-known, so that’s a good place to start, since the taxman will have access to just which accounts saw a big jump in deposits. Similarly, according to a report in The Times of India, till December 17, around 1.14 lakh bank accounts saw cash deposits – that’s an average of Rs 35 million per account. Given such sums of cash are more likely to be held only by those whose income was black, this is another great place to probe. Similarly, the Timesreported, nearly 1.2 lakh borrowers repaid loans of over Rs 25 lakh using old notes in November itself – if Rs 50,000 crore came in this way, chances are this money too was black money. While the taxman has access to lots of information, what is more relevant is how easy it will be to prove the money was black – after all, thousands of chartered accountants will have prepared loads of paperwork and shell companies, over years, to show the money is kosher.


Though sophisticated algorithms will help detect which the suspicious accounts are, after cross-referencing with tax returns – so, for instance, those firms whose incomes have risen by more than 50% will be picked up for scrutiny – at the end of the day, proving the case will require senior tax officials to get involved; after all, someone will have to prove the back-up paperwork provided by the chartered accountant is fictitious. Apart from the fact that the tax department is under-staffed, even routine tax work cannot be put aside since that is critical to check tax evasion. While many argue the task is simple, and just requires small teams of top-notch professionals to catch the launderers, had it been so simple, the taxman’s record wouldn’t be as dismal. Between FY10 and FY15, for instance, while corporate and income tax collections rose 1.9 times, tax arrears rose a whopping 5.2 times, from Rs 109,485 crore to Rs 564,403 crore – as a result, while tax arrears were 61% of total collections in FY10, this rose to 82% in FY15. Some part, no doubt, is due to the long delays in the legal system, but it also suggests the taxman’s capacity is limited – whether a staff crunch is the reason is not clear. Under the circumstances, the taxman would do well to focus on a much smaller number of cases – this will allow many of the guilty to escape, but the chances of catching launderers will be higher; after all, what are the chances of being able to go after thousands of villagers to prove they laundered money, even if at Rs 25,000 crore the total is very large? Once the message goes out that the taxman is focusing closely on a smaller number of cases, chances of a more successful IDS-2 will also rise.



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