Hunting for Black Money

Prof. M. K. Bhat
It does not require a rocket science to know about the prevalence of black money in our country as maximum dealing takes place in black. The shop keeper may tell you that it will cost less to buy a commodity  without receipt, the property dealer will say I will give receipt for less amount than what you actually pay, no property deal  is 100 percent foolproof rather the first talk with  the  dealer is how much will be in white , the  official  may favour business  in lieu of money which  enters in no account books , the tax consultant will teach you how to exploit the law for your benefit, the  politician submits election expenditure much below the actual expenditure, you bribe an official  for  getting a favor there is no receipt for the money.  The educational institutions hardly show capitation fee, trusts work on black money. There is nearly 70 % of GDP in black and just 30% in white. The prevalence of black money cannot be possible without the collusion of the income tax officials, bureaucrats, and politicians and other departments. It is an irony that people   know all this but still pose as innocents and go hunting for black money.
Elections are fought and won on black money. Former Prime Minister, Mr. Atal Bihari Vajpayee used to say “every legislator starts his career with the lie of the false election return he files’ The cap set by election commission is Rs. 70 Lakh for a parliamentary seat; candidates spend much more than this and the election commission knows about it but still issues orders as if unaware about the things.
A part of this unaccounted money flows outside the country while as the remaining circulates within.  Black money within the country is as harmful as the part that goes outside.  Although there can be no sympathy for black money holders yet domestic black money holders lead to tax avoidance but funds kept outside are more treacherous as the country fails to utilize them in its economic growth process. The money stashed outside could have been spent for investments in health, education, roads and general public welfare etc. It could have gone a long way in removing the poverty in the country.  The money stashed outside gets its way to the tax heavens of world and comes back through countries like Mauritius. Nearly 40 % of FDI into India comes from Mauritius – a small country- anyone can guess how these countries can invest so much.
The money is stashed outside through Hawala transactions -where money is transferred abroad without the real movement of funds .The out flow of money also takes place beyond the boundaries through the manipulation of export invoices   and establishment of trusts outside. A trust is formed outside and the trustee may be a foreign citizen but the actual beneficiary will be the relatives of the trustee back home who put money in the initial corpus.
There is no method to calculate black money stashed outside and no official estimate of such money exists so different views are being put forward sometimes intentionally and at other times as a guess work. ASSOCHAM holds $2 trillion or 120 lakh crore of Indian money stashed outside. This is more than the nominal   GDP of the country at 114 lakh crore or $1.9 trillion in 2013-14, various other estimates have put it at$ 500 bn to$ 1.4 trillion. The more realistic figures have come from US based organization named Global Financial Integrity in its report titled ‘The drivers and dynamics of illicit financial flows from India 1948 to 2008’ published in 2010. It concludes that since 1948 we have lost 213 billion US$ in illicit money, the present value of which in today’s dollars would be 462 $ or 20 lakh crore of rupees. The much hyped Swiss bank accounts are just a tip of the iceberg. Official Swiss Bank figures show that 0.07 percent of the assets in Swiss Banks are held by Indians – some $2.5 billion dollars out of $ 3.5 trillion held in swiss banks by foreigners, or under 10,000 crore.
The election 2014 was won by BJP on the plea of getting black money back into the country. Its importance as an election issue became prominent since 2009 when NDA under the leadership of Mr. L.K. Advani included it in its election manifesto. Prime minister, Narender Modi strongly reiterated his commitment to get black money stashed outside back in G20 Summit. He gave a befitting answer to all those who doubted the intensions of government for not exposing the names, despite establishing SIT at the earliest and handing over the names to it immediately. The  Supreme court too could not expose the names despite getting the same from Government because it involves foreign countries so international law /treaties and domestic laws of the country where funds have been kept cannot be ignored .
Prime Minister very well linked unaccounted money to security challenges. The black money is used in anti national /social activities like terrorism, Drug trafficking etc both at domestic and international level. He tried for automatic exchange of information to tackle black money. It transcends borders so international cooperation becomes inevitable to control this menace.  There is need of transparency and disclosure of tax information by the countries.
Black money of the country is both a stock and a flow. While chasing its stock, we have come to know about certain accounts but still more may be unexposed in the treasures of tax heaven countries. Its flow is not only continuous but on an increase. According to global financial integrity organization between 1948 and 2008 $ 500 bn have gone outside India and between 2003 and 2011 $ 350bn have gone out of the country. Rumor Mills work overnight about the stock of black money outside, but least bother for its continuous outside outflow.
The responsibilities of Government need huge expenditure on the one hand  and loss of tax revenue to the exchequer on the other, makes it imperative to control illegal money  at the source itself. The Government shall try to find out measures to control it.  The stocked money outside can be back through international deliberations but the continuous outflow cannot be controlled without stringent measures at home. It may not be out of way to mention here that the outward flow of black money in the country has increased at a high speed in the post liberalized era.
As a way out some people advocate six months amnesty to get money back with 40% tax .It has helped in USA ,Germany but it may mean injustice with those who follow rule and such amnesties in India have only helped to develop an attitude of duplicity. High stamp duty is leading to under reporting of property value. This needs to be reduced and should be uniform in the country. The difference between official rate and market rate of property needs to be mitigated. The political funding should be transparent. Political parties shall declare the source of their funding as it involves huge amount of illegal money. The cumbersome tax procedures also make people to avoid taxes.
A war on black money at home can go a long way to control its outward flow.
(The author is Deputy Director (M.A.I.M.S) Guru Gobind Singh Indraprastha university, New Delhi)


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