Finance Minister Pranab Mukherjee
presented the White Paper on Black Money in the Parliament on May 21. The 108-page
Paper trashed the huge figure of illegal wealth stashed away by Indians in
Swiss banks and said much of the money may have already come back into India India
Indian Black
Money Issue
The Bharatiya Janata Party (BJP) has termed the government's White Paper on black
money as "disappointing" and a "non-paper." The Opposition
party said that it is "like a bikini" as it hides the essentials and
reveals only the less significant details.
The issue of Indian black money stashed
abroad has been raked by the Bharatiya Janata Party (BJP) time and again both
inside and outside Parliament. Party veteran L K Advani had taken out a month
long Jan Chetna yatra across the country to highlight the issue.
The White Paper has not revealed the
quantum of Indian black money kept in tax havens abroad. Neither has the
government shared details of steps it has taken to repatriate this wealth.
The bank deposits of Indians in Swiss
banks have decreased from Rs 23,373 crore in 2006 to Rs 9,295 crore in 2010.
The government has not disclosed where this money has gone. Has it come back to
India
The Opposition has been demanding that
the government make all efforts to bring back this money as has been done by
countries like the United States ,
Germany and Ireland
The White Paper is also silent on the
black money made by illegal sale of arms and armaments, evasions on stamp duty
especially in land transactions, and use of such funds in politics. This
document has several shortcomings. It does not explicitly explain what has been
done to deal with black money in arms and armaments.
The generation of black money through
stamp duty evasion especially in land transactions has not been revealed. The
black money made by corrupt politicians has also not been revealed.
Tax
Immunity Scheme
On the possibility of any tax immunity
scheme, especially gold deposit scheme, to deal with black money, the White
Paper said, "The issue of complete tax immunity needs to be examined in
the light of other policy objectives." The document seeks to dispel the
impression that government was not doing enough to deal with black money and
talks about various policy options and strategies it has been pursuing to
address the issue of corruption in public life.
Referring to the issue of institutions
like Lokpal and Lokayuktas, the Paper said, "(they) need to be put in
place at the earliest, in the Centre and the states respectively, to expedite
investigations into cases of corruption and bring the guilty to justice."
The government has not been able to push
through the Lokpal Bill in Rajya Sabha (upper house of the Parliament), despite
pressure from the civil society. The Bill was approved by the Lok Sabha.
Introduction of
Goods and Services Tax
The introduction of Goods and Services
Tax, the White Paper added, would be a major step in integrating the efforts of
different agencies dealing with black money.
Referring to the misuse of corporate
structure, the Paper stated, "The Vodafone tax case provides an instance
of the misuse of corporate structure for avoiding the payment of taxes."
In this case, it said, the Hutchison
Group had made investments in India
from 1992 to 2006 through a number of subsidiaries having 'separate corporate
personality' but which were essentially post box companies based in the Cayman
Islands, British Virgin Islands, and Mauritius
The Hutchison Group sold its entire
business operation in India
in February 2007 to the Vodafone Group for a total consideration of $11.2
billion and the same was effected through transfer of a solitary share of a Cayman Islands company.
Global Financial Integrity (GFI) has
estimated that from 1948 to 2008 a total of $ 213.2 billion has been shifted
out of India through illicit
outflows and the adjusted gross transfer of illicit assets by residents of India
The White Paper’s view is that this money
has at least partly already returned to India
Four-Pronged
Strategy
The Paper suggested four-pronged strategy
to curb generation of black money. These include more incentives for voluntary
compliance of tax laws, reforms in vulnerable sectors of economy and creation
credible deterrence. It mentioned that reform of financial and real estate
sectors would help in reducing generation of black money in long term as
freeing of gold imports had helped in checking smuggling.
On the need to curb this menace in
vulnerable sectors like real estate, the provision of deducting tax at source
on payments made on real estate transactions and mandating it as a
pre-condition for registering of the transacted property could be considered.
Large number of transactions in bullion
and jewelry are unaccounted and there is also urgent need to improve the
reporting and monitoring systems in this sector. On the informal sector and
cash economy, the Paper states that there is a need to amend laws to check
keeping very large amounts of cash. Another important measure could be the
promotion of banking channels, including use of credit and debit cards through
tax incentives, since they leave adequate audit trails and hence disincentivize
black money generation. Levying tax at source at a low level on cash purchases
may also be considered as a possible policy option.
The White Paper states that there does
not seem to be much progress on repatriation of black money abroad. It says
that the government has been working on bilateral treaties. However, these
treaties do not have provisions for repatriation of undisclosed assets. Without
international consensus on this issue it is difficult to implement domestic law
on repatriation of assets located abroad.
Assessment
Undoubtedly, we now know that based on
some recent international data, India is 15th in the world in terms of outgo of
unaccounted or “black” money, namely money that has evaded the tax net and has
been parked overseas.
The White Paper does not say anything that is not
public knowledge but shifts the focus from foreign banks to domestic culprits
and sources. Since the finance minister had refused to disclose the names of
those holding illegal assets abroad in the Supreme Court as well as Parliament,
it was futile to expect their mention in the White Paper. The government report
talks of the possibility of one-time amnesty scheme for tax evaders to encourage
disclosures and recover tax.
The Paper gives an idea of the generation of black
money in the system, and calls for reforms in the financial sector, including
taxation and in investment instruments such as participatory notes, as well as
in real estate.
Some Facts
* To curb black money, a four-pronged strategy —
reducing disincentives against voluntary compliance, reforms in vulnerable
sectors of the economy, creating effective credible deterrence and supportive
measures — is being worked out.
* The White Paper states that encouraging the use of
credit and debit cards — as they leave adequate audit trails — could also help
in preventing black money generation.
* It also proposes improved reporting and monitoring
systems to track bullion and jewelry transactions and wants close tabs on real
estate deals
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