Economy

FICCI’s nine mantras to curb black money

Shishir Sinha New Delhi | Updated on February 19, 2015 Published on February 19, 2015

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Industry chamber FICCI has suggested a 9-point agenda to curb the generation of black money. It has submitted a report titled ‘Widening of tax base and tackling black money’ to the Finance Ministry.

“Beyond the issue of unaccounted monies lying overseas, however, is the issue of unaccounted monies lying in India and what is perceived to be the parallel economy,” the report said.

It mentioned that black money generation in India primarily takes place through two sources. The first source includes those activities which are not permitted by the law, such as crime, drug trade, terrorism and corruption. The second is through a legally permissible activity but not accounted for and/or reported to public authorities which may result in tax evasion.

Tax evasion involves misreporting or non-reporting of the transactions in the books of account. Manipulation of financial statements results in the generation of unaccounted income that amounts to black money.

Quoting research papers, the report said that about a third of India’s black money transactions are believed to be in real estate, followed by manufacturing, and purchase of jewellery and consumer goods.

In order to curb the generation of black money, the report has suggested policy action by Government. It said that there is need to Incentivise transactions through credit/debit cards and other banking instruments.

It is recommended that the Government may provide some incentives so that dealers (particularly of high valued items like jewellery, FMCG etc.) are encouraged to accept payments through credit card / debit card and other banking instruments. These incentives could take the form of an additional deduction from income relatable to the transaction value for calculating the tax liability or a reduced Value Added Tax (VAT).

Its second recommendation is about establishing a central database to facilitate storing of invoices issued by FMCG companies to small businesses across the country. The database can be then used to effectively monitor the purchases made by these small businesses from FMCG stores and the corresponding sales reported by them. This will help in detecting any discrepancy in sales reported by small businesses and probable chain of generation of black money, it said.

Regarding reforms in real estate, the report said that as the registration charges and taxes are dependent on the value of the transaction, buyers under-report the value to avoid paying higher taxes and charges (by making a portion of the payment in cash). This enables the parties involved to declare lower transaction values. Here, it suggests splitting taxes and charges at the time of registration can be split into two parts - a fixed component and a variable component.

“Irrespective of the reported value of the property a fixed component be paid to civic authorities, while the variable component may be dependent on the current market prices of the property. The market price of a property may be determined by an independent government approved agency. The value of the property reported by the agency may form the basis for calculating the taxes and charges to be paid by the buyer,” it said.

Published on February 19, 2015

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