Education

Shadow-boxing at play

T.C.A. RAMANUJAM | Updated on June 17, 2011 Published on June 11, 2011

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There is no column in the income-tax return at present to get a declaration from the taxpayer about the foreign bank accounts, if any, held by him.

Baba Ramdev has achieved overnight what successive Finance Ministers of free India and a host of publicists and academicians could not in the past half a century. The nation is now conscious of the evils of the accumulation and proliferation of black money secreted abroad.

By refusing to part with information and by taking shelter under various clauses in the Double Taxation Avoidance Agreement, the government has only exposed itself to the charge of deliberately soft-pedalling the issue. The Japanese intellectual, Mr Francis Fukuyama, in his latest Magnum Opus ‘ The origins of political order' points out how over the centuries China developed a strong State that kept society weak while India had a strong society that prevented a strong State from emerging. Civil society in India has started asserting itself and is now calling all the shots in the campaign against corruption and black money.

Estimates of black money

The Wanchoo Committee estimated the share of a black economy as 7 per cent of the GDP in 1971. Then came the report by the National Institute of Public Finance and Policy in March 1985 estimating the quantum of black money in India as 21 per cent. Today, we have the estimate by the Global Integrity Report indicating the share of the black money as 50 per cent of the GDP. Black money is generated according to the 1985 report through ‘kickbacks, cuts and commissions on Government projects and purchases”. Our economy is categorised as a trillion-dollar economy.

Demonetisation

Baba Ram Dev demands demonetisation of the currency notes of the denomination of Rs 500 and Rs 1,000. This shows a rustic approach to the problem. Cash has never been a significance form of holding black money. It yields no return. Large quantities of cash are vulnerable to detection in tax raids.

The government resorted to demonetisation of high denomination currency notes on two occasions, namely 1946 and 1978. It was an utter failure. In 1946, out of a stock of Rs 144 crore in circulation, only a sum of Rs 9 crore was not presented for conversion. In 1978, the value of unconverted high denomination notes was Rs 20 crore out of a circulation of Rs 145 crore (see the study by NIPFP, page 436).

As the Shankar N. Acharya Committee pointed out, cash is not an important form for holding black wealth for those who are active participants in black income generation. Baba Ramdev is gullible in making the demand for demonetisation.

Nationalisation

Baba Ramdev demands declaration of unaccounted assets held abroad as national wealth. Machiavelli wrote three centuries bac, how a man will more easily forgive the murder of his father than the seizure of his property.

A mere declaration even by an Ordinance of the President will achieve no purpose. Who will decide what is black wealth and how it is unaccounted. We are a society governed by the rule of law. The existence and ownership of black money will have to be proved in a court of law. We have to contend with the doctrine of mens rea.

Should we feel helpless in this matter? Certainly not!

First, we can consider the latest Swiss law which will enable our Government to access details of individual accounts held by Indian citizens in Swiss banks if it can be shown that there is a link with illegal activity in India. Switzerland is also prepared to share with India a portion of the tax levied on the interest that the Indian account holders earned. The European Union has taken advantage of this change in Swiss law. The Swiss retention tax on interest payments is going up from 20 per cent to 35 per cent from July 1, 2011.

The Government of India should pursue this idea. The Swiss Government is agreeable to examine an official request for information on “savings tax agreements”.

The savings tax on interest income is leviable on all personal bank accounts in Swiss banks, irrespective of the date of the agreement. The only condition is that the accounts should still exist (see the Hindu dated June 4, 2011).

At periodical intervals, our law makers declare their wealth before the Election Commission. From a nominal figure at the time of their first election, their income and wealth multiplies at the end of the first, second and third term in the legislature.

We are yet to hear from the Income-Tax Department about the probe, if any, carried out in such cases.

There is no column in the income-tax return at present to get a declaration from the taxpayer about the foreign bank accounts, if any, held by him. This is a significant lacuna.

The government has done well to abolish the Participatory Notes. It should also close investments into Indian markets through tax havens such as Mauritius. Long live the crusader against black money.

(The author is a former Chief Commissioner of Income-Tax.)

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Published on June 11, 2011
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