Economic
Highlights
New Delhi, 31 October 2014
Elusive Black Money
REDEFINE EARNINGS, TAXES
By
Shivaji Sarkar
What is black money? Nobody really knows. It is a ghost that is
neither seen nor leaves. How much is the black economy? Again, there is nothing
to guess. Who creates black money? There are two answers. The taxman says the
tax evaders. The business class or tax evaders believe that there is nothing
like black economy, only rules and law create it. Both are correct.
The country ruled by the legacies of
the British bureaucracy still interprets the law and customs as per those
times. This gives them clout and also power to be less honest. Since 1999, the
nation often takes pride in being a liberalized economy. It also sees that
post-liberalisation, many cases of harassment of citizens particularly those
into the businesses have increased.
Another major flaw of liberalized
economy is to rout every transaction through structured bank routes. It has
only led to the banks losing over Rs 240 lakh crore of public money. As per
official records Rs 70,000 crore has been gobbled up by large houses.
No official organization including
the Reserve Bank talks about it. Bureaucrat-led governments, which control the
major part of the banking sector, talk in terms of recapitilising the banks as
per the so called “Basle norms”. It means
people’s money is pumped into losing banks, the people lose the money and the
banks continue their misdemeanour. Most finance ministers do not treat it as a
malaise. Are not the beneficiaries of banks’ largesse generating black money?
Again nobody gets an answer.
It has been made a complex issue
because for the past over 60 years governments have not acted where it could
have. A new government with a new outlook has come. Let it do a quick audit of
how much has been lost by banks and financial institutions during the last 30
years, including in the various stock scams. It also should initiate steps to
recover that money.
Bankers, as the recent bribery
incident by the Syndicate Bank chief indicates, are hand in glove for
squandering away public money for small personal gains. Foreign banks
particularly those operating from Swiss haven are no saints is known to the
world. Would various international treaties for exchange of information to
check tax evasion be effective? Possibly, it would generate more ways to evade
the taxes.
So should we have a relook at taxes
and other rules? In the post-liberalised era, the country is faced with a
plethora of new rules and laws. There are green laws, red laws, laws not to
allow industries to function, refusal of industrial licences in places like Delhi, banks’ bid to
engulf all businesses and punish who do not and many other hassles. Even trade
houses for fear of being harassed by officials, not government, do not open up
with all their grievances lest their basic functions are affected.
Many businesses in Delhi are run without “licences” because no
industrial licence is issued here. It props up avenues for the officials to
fill their kitty and businesses to fudge their accounts. (In real terms,
officials earn black and businesses save their skin to earn a livelihood).
The issue is complex. The courts
have limited role to the adhering of rules. Initiative has to come at the
political level for a pragmatic approach to strengthen and ease the economic
process.
A basic flaw in all the rules is
ignoring the reality of cash economy, which is the strength of the Indian
economy. It keeps non-payments to the minimum. Word of mouth is more trusted
than sheaf of papers. The kisans (farmers),
intermediaries, cold storages, mandi
samitis (market committees), retailers, wholesalers and who not in every
different kind of market prefer cash transactions. It has its own strength and
level of trust because like a cheque nothing bounces.
It has its problems in terms of tax
authorities. There is plethora of these from the panchayats to every subsequent
level. It is just not the issue of uniform goods and services tax (GST), direct
tax code (DTC), which have their own problems. Every State has a number of
taxes or tolls. Each of these adds to the business cost and finally the selling
price.
The British-laid colonial tax system
was created to hamper the Indian business. Income-tax code is a relic of that
era. It puts every economic activity on a leash. It does not recognize most of
the cash economy, which is over 90 per cent of the total economy.
Despite bureaucratic claims taxes
are complex. Mere removal of income-tax, at least up to an income of Rs 1 crore
initially, would free the economy to a large extent. Incentives have to be
created for keeping money in the country. It needs to be realized that for
international business, accounts in foreign banks are a necessity. Some are of
course used for evading taxes.
It also raises another question
whether all kinds of incomes should be taxed. Mere moral codes are not an
answer to such complex questions. It is linked to business competitiveness,
clientele and so many other issues. The objectives of laws are fine but the
premise that everybody is a criminal is improper and penalties for the minutest
of evasion or mistakes are inappropriate. The Vodafone retro tax has proved it.
A benevolent State and particularly
the one that wants to take a leap into the international arena, needs to set
different sets of rules to make it just not a manufacturing but an economic hub
of the world. The nation needs to learn from the conveniences provided by the
tax havens such as Mauritius,
Seychelles, Gibraltar, Monaco
and others. Stringent systems leave way for flight of money.
Since the Second World War black
money has generated enough debate but little solution. Prime Minister Narendra
Modi is open to ideas. The nation needs to look at these issues with a new
vision. Except earnings from criminal activities, gun running, laundering
virtually there is nothing that a citizen earns or spends is “black”. The money
is pure. The country needs to simplify that definition (of course to the
chagrin of officials, who thrive on it) and create a system that gives speed to
the economy.
Let us redefine the earnings and
simplify. “Black money” would evaporate in all legal transactions. The nation
hopes the next Budget would pave its way, remove fears and give a boost to the
economy. ---INFA
(Copyright, India
News and Feature Alliance)
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