White Paper on Black Money: Opposition Terms Document Disappointing, Non-Paper

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 through illicit means. It did not disclose any names of Swiss account holders or provided any fresh estimate of black money in 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? Or has it been transferred to some other tax haven? Or has it been invested somewhere?

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, among others.

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 amounts to $ 462 billion as of end-December 2008.

The White Paper’s view is that this money has at least partly already returned to India. This may have been happened through Foreign Direct Investment route and stock markets.

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

Committee Formed To Bring Black Money Back

Black money and corruption are two such issues that have jolted our public life and the polity badly. The two issues are linked with each other. Traders, politicians, senior bureaucrats, officials and the go between, earn huge sums of money by dubious means through corruption and bribery. To keep that money out of the sight of the Income Tax sleuths, they stash that black money in foreign banks. Such banks are usually located in Germany, Switzerland, Mauritius and other smaller countries and islands, where black money is stashed to avoid paying tax and to save themselves from punishment.

GFI Report
According to a report released recently by a US organization, Global Financial Integrity (GFI), $104 billion worth of black money had been deposited in foreign banks between 2000 and 2008. The report was captioned, 'Illicit Finance Flows from developing countries 2000-2009'. It means that since the situation did not improve after economic reforms, some influential and highly placed person became multimillionaires at a faster pace.
Jullian Assange, founder of WikiLeaks, has disclosed in an interview recently, that there are names of some Indians in the list of those who have stashed their black money in Swiss Banks. He promised to publish the material soon. In an interview to a TV channel on Tuesday last, he appealed to the people in India not to lose heart because he would certainly reveal the names of those who have their accounts in Swiss Banks. He hinted that prior to revealing the names, he might seek the opinion of some expert agencies on it.
He also alleged that the Government of India is not adopting the same kind of aggressive stand as was adopted by Germany to get the names of Indians who have stashed black money there. He added that adopting a harsh stand to get the list of the account holder is all the more necessary for the Government of India because it is India, which is losing tax income more than Germany.

Double Taxation Deals
Earlier Jullian Assange had claimed that the documents regarding the account holders that had been handed over to him by Rudolph Elmer, contained names of individuals from the United States, the United Kingdom, Germany, Australia, and Asia. In short, it had names from almost all regions including traders, politicians, artists and those working in multinational companies and in corporate sector. He did not agree with the contention of the Indian Government that double taxation deals are proving a hindrance in bringing the black money back. Assange maintained that hiding the wealth is not at all related to double taxation and stashing black money in foreign banks is more damaging than corruption.
Meanwhile, on the direction issued by the Supreme Court that the government should form a special team to unearth black money, the government has informed the apex court that it intends to constitute a ten member committee to go into black money, terrorism, and drugs syndicate issues. The proposed committee is to be set up under the Secretary Revenue, which would also have senior officers of the Central Bureau of Investigation, Enforcement Directorate, Intelligence Bureau and the Reserve Bank of India. Solicitor General Gopal Subramaniam said that the committee would start working immediately and the revenue secretary would submit a status report on the progress made by the committee, from time to time, to the Supreme Court.

Legal Action Taken
It may be recalled that the apex court bench comprising Justice B. Sudershan Reddi and Justice S.S. Najar had asked the federal government that in view of the general feeling that nothing worthwhile is being done by the government to bring the black money back, why should a special investigation team be constituted and why should not the names of those having accounts in foreign banks be revealed? Meanwhile, the government has received Rs.70 million from nine culprits who had stashed black money in the LGT Bank of Germany. The amount has been received not only by way of income tax but as fine too. Also, legal action has been initiated against six other culprits.