The Hindu Business Line : An ill-conceived chase of ill-gotten wealth

THE other day Mr Laloo Yadav went on record in front of TV cameras giving syrupy details about the huge amount of black money allegedly stashed away in Swiss banks by his bete noire, Mr Ram Vilas Paswan. If anything, this revelation reiterated what everyone knew — unaccounted money is hardly ever deposited in bank accounts in India. Only the naïve would do so.

Currency notes of both indigenous and foreign varieties have often tumbled out of bank lockers on being raided. But no sir, not out of savings account. Unless of course, the accountholder had made a grave miscalculation and not covered his tracks well, thus exposing him to the charge of amassing assets disproportionate to his known sources of income. Black money owners often cover their tracks well by vesting their ill-gotten wealth with the cloak of agricultural income and other incomes that enjoy immunity from income-tax.

This elementary lesson on black money seems to have been lost on the Finance Minister, Mr P. Chidambaram, of all the people. In his zeal to usher in the cheque culture and to leave an audit trail on huge cash withdrawals, he has introduced a 0.1 per cent tax on bank withdrawals in excess of Rs 10,000 a day as also on the value of drafts and other instruments got made from banks in a day for an amount in excess of Rs 10,000 a day.

Cheque culture is fine. But the country has a long way to go before frowning upon cash transactions. Not everyone goes to fancy and swanky departmental stores, which accept debit or credit cards. That such stores discourage the use of such cards by adding service charges for entertaining these cards also is a cause for disenchantment with the card culture amongst the vast number of users.

Leave alone the department stores, not all petrol vends, no auto-rickshaw driver, no taxi driver, no maidservant and no milk vendor accepts cards. Mr Chidambaram is, thus, deluding himself when he talks of ending the cash culture. The festering problem of black money needs to be tackled on a more serious note.

One could have understood had the bank managers been mandated to report to the tax administration suspicious and huge withdrawals so that their sleuths could tail the withdrawers.

This would have been of a piece with the kind of vigilance already exhibited by the administration when it keeps an eagle's eye on ostentatious weddings. Political donations which are almost invariably in cash with cheque donations rued by those who dared to make them is one of the fundamental causes of black money generation — you need black receipts to make black payments. Yet, the problem of political funding has not been addressed at the highest policymaking levels though reams have been written on the issue and its ramifications. So long as the unholy nexus among politicians, industrialists, bureaucrats and criminals exists and thrives, black money cannot be wished away.

And it also cannot be wished away when fecund sources of camouflage, such as agricultural income and other shields, exist. Widening of the tax net, which has remained a platitude, brooks no delay.

The presumptive taxation schemes need to be fine-tuned so as to make their evasion impossible. For example, truckers would cough up their income-tax if only the road tax department functions in tandem with the tax administration and impounds trucks sans tax stickers that ought to be introduced a la pollution-check stickers.

The banking transactions tax that is sought to be imposed is not the apt solution at all. It tars everyone with the same brush. Heightening of the threshold limit from the one proposed in the Finance Bill 2005 — Rs 10,000 — to Rs 50,000 may save the middle class from its clutches but it would still dampen and hamper normal banking activities.

A businessman often withdraws amounts in excess of Rs 50,000, especially for salary dispersal to low paid employees. In short the move would affect adversely the businessman as much as it would affect the householder. At any rate, even a businessman would cock a snook at the scheme by withdrawing just a shade below the threshold limit.

One hopes the Finance Minister gives up this puerile attempt and gives a more serious thought to the question of fighting black money. One also hopes that the solution he eventually comes with is not VDIS 2005.

(The author is a Delhi-based chartered accountant.)

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