The Hindu Business Line : `Bonding' with black money

WITH the Left and its allies reluctant to allow divestment in BHEL and other public sector undertakings, hopes of realising about Rs 10,000 crore have been shattered, and the United Progressive Alliance Government will be left to devise other ways of funding the vital sectors of health, education and rural infrastructure.

Also, the Finance Minister, Mr P. Chidambaram, is restrained from raising the prices of oil, LPG and kerosene even as crude prices are soaring and the oil companies are finding it difficult to cope. He cannot also increase corporate taxes or alter the personal tax structure. Reducing the staff-related expenditure of the government, which takes up a lion's share of the revenues, is an emotive issue both for the Left and the Congress to think of even tinkering with.

It would be an achievement if the Government is able to resist pressure for wage revision by banks and even government employees. Though the Left may not be averse to it, taxing the incomes of the rich farmers has never been considered, as they enjoy tremendous political clout. With fiscal deficit high and the need to keep borrowings within limits, the options before the Finance Minister are limited.

The Government has made promises both during the electoral campaign and in the National Common Minimum Programme, raising the hopes and expectations of the rural population. And, the UPA Government is well aware that the predecessor NDA coalition was thrown out for ignoring the poor.

The emergence of the knowledge segment, with seemingly boundless opportunities for employment and high income, has benefited only the skilled and the well-educated. The relatively slow farm growth since the 1990s, the sluggish growth in the poor States, the problems of inadequate infrastructure, the inadequate social services and amelioration measures, particularly in the backward States, could partially explain the Government's urgency to make some tangible in these areas.

The Finance Minister will need to tap new avenues to augment the revenues. Recovery of non-performing assets, where considerable sums are is locked up, is time-consuming and difficult. Widening the tax base is being talked about as a panacea, but the progress is inevitably slow. Finally, the Finance Minster should perhaps think of falling back on his old strategy — of ferreting out the black money using some carrot. The political and administrative machinery has not been able to prevent the rampant spread of black money, which accounts for 20-60 per cent of GDP; one guesstimate of this hidden wealth is Rs 70,000 crore.

Much of the black money is hidden in the real-estate transactions with a boom in the housing sector and banks only too willing to offer loan at low rates. The sale price declared is mostly lower than that actually paid for. It should not be difficult for the tax authorities to scrutinise the source of funds and the bank accounts in every deal.

There is, perhaps, a case for keeping the stamp duty at a reasonable level, as it is one of the reasons for tax evasion. Nevertheless, the government should get tough on tax cheats and the thriving property market should be its main target. The film industry, accounting for a huge turnover, is virtually without any control and lacks the rigours of proper accounting and audit. All transactions in this field are in cash and are, thus, a veritable source for tax evasion. There are two ways of tackling the black money problem. One is to fight the menace without any compromise, in which case the success will be limited and the money could forever remain out of the government's reach.

The other option is to ferret out whatever is possible by way of amnesty schemes such as the erstwhile Voluntary Disclosure Of Income Scheme (VDIS), however inequitable it may be to the honest tax-payer. Though the Finance Minister is keen on unearthing the black money and hidden assets, he may be averse to bringing in any fresh voluntary disclosure or amnesty scheme, particularly after the adverse comments of the apex court and the promise that there would be no repeat of such schemes.

If yet the Government wants to flush out the black money and can ill-afford the time consuming investigative and enforcement procedures, it would be by permitting disclosure of the concealed amounts by investing in zero-interest government bonds for five-six years with payment of 30 per cent tax on such amounts.

However, for the scheme to succeed, there should be a clear waiver of penalty and interest in full, without leaving it to the discretion of the commissioners except in certain cases where action is already underway like those charged under the Indian Penal code, Narcotics and Psychotropic substances Act or Prevention of corruption Act. The loss of interest for the five-six years would be the price the defaulters have to pay. This scheme may still be viewed as circumvention by the apex court.

In such a situation, the only solution would be for the government to come out with a plea about the special circumstances surrounding the introduction of such a scheme of finding the much-needed resources for investing in social sectors and rural infrastructure. This laudable objective should mitigate the inherent flaw in such schemes and also satisfy the court that the disclosures are not without adequate costs to the defaulters.

It is not that this scheme would flush out all the undisclosed income or prevent fresh creation. The only benefit that would accrue to the government would be revenue that it sorely needs, without it having to raise taxes or to cut subsidies. The government can, perhaps, think of demonetising Rs 500 and Rs 1,000 notes with an element of surprise.

The introduction of Value Added Tax by all States should eventually make dishonesty costly. Much of the undisclosed income is generally in the form of gold jewellery secured in lockers and is tough to detect. Mandatory verification of PAN numbers in transactions above a certain limit, encouraging the use of credit cards, greater control on money flow from Mauritius, and incentives for unearthing black money could be thought of. Though this is bound to elicit adverse reaction from the honest tax-payer, it should not deter the government.

In difficult times, some unusual procedure will have to be adopted. After all, the money thus recovered would go to social sectors such as education, health and shelter for the economically deprived. The larger objective would neutralise the demerit that lies in such an amnesty scheme.

(The author is a Chennai-based freelance writer.)

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