Evading the point

| Updated on: Jan 26, 2011

It seems pointless now to assess the extent of tax evasion when it can be reduced simply by greater transparency in the main stores of black money.

Even his worst critic would not accuse the Finance Minister of being frivolous. But it seems he can, when he wants to, come up with some dry humour. So, in spite of the gravity of the problem of black money, it is impossible not to smile at his decision to set up a committee to figure out how much of it is generated in India. Not only does it seem unlikely that any ‘expert' can estimate the extent of tax-evaded income better than a non-expert, it also seems quite pointless to do so when tax evasion can be reduced simply by insisting on greater transparency in the main reservoirs of black money. For example, transactions in one of the biggest stores of value — land — are not merely the most opaque, they also very easily allow undervaluation for the purposes of registering ownerships. Why not place these transactions on the Internet so that these can be scrutinised by any one? Gold is easier to store – Rs 100 crore in black money can buy 500 kilos of gold, which can quite easily be stored (40 bars can be kept under the bed, if necessary). Undervaluation of the kind possible in land is simply not possible with gold, for a very good reason: there is no government intermediary that permits such dirty work at the crossroads.

It is also important to ask what sort of expertise is needed for the estimation of black money and who these experts are. The provenance of such experts would be critical. The last time such an exercise was done in the mid-1980s and a report produced, the only independent member of that committee quit in disgust because of what he said were efforts to downplay the extent of black money in India. That Committee had been based in the National Institute of Public Finance (NIPFP), which is funded by the Finance Ministry. This is not to say that the principle of ‘he who pays the piper calls the tune' will prevail. But for greater credibility, it is probably best to ask someone else to carry out an exercise of this sort. On the whole, however, it would be best not to waste public money on it because no great purpose will be served.

Simply going by the thumb-rule, around half of the GDP coming from the services sector would be income that is not being taxed. The Government has always claimed that the absolute sums are very small but that is surely a piece of self-serving nonsense because the sector is so large — constituting about 55 per cent of GDP and largely untaxed. Even at a conservative estimate of 50 per cent, the untaxed portion comes to around $36 billon dollars because, if GDP is $1.3 trillion, the share of services is $71.5 billion. Of course, a part of this income comes from bribes. But corruption is not a problem for economists and econometricians to solve because there can be no economic incentives against corruption, only for it.

Published on November 10, 2017

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