Hyderabad:
NDA showed its political will, says Former Union Home Secretary K Padmanabhaiah
The NDA government, in its first Cabinet meeting, set up a 13-member Special Investigating Team under the chairmanship of a retired Supreme Court judge to investigate cases relating to black money.
The direction to the government to set up such an SIT was issued by the Supreme Court as early as 2011, but the UPA government had opposed the idea and had approached the apex court to review the order. The plea was rejected by the court, which gave a final date to constitute the SIT. Even so, credit must be given to the NDA government for having shown the political will to fight the menace of black money.
Any discussion on black money ends in a black hole from which no worthwhile information can be retrieved. The reason is the presence of multiple agencies dealing with the subject.
Black money is unaccounted for money on which no taxes are paid. The sources of black money may be legitimate or illegal. Certain trades and businesses like land, real estate, bullion and jewellery, film production, racing etc., and practices like under-reporting of production levels, under-invoicing of exports, over-invoicing of imports, round tripping through tax avoidance treaties, and misuse of financial flows like Participatory Notes by FIIs, generate considerable black money.
Effective implementation of relevant laws like Excise, Sales tax, anti-corruption and electoral laws can curb generation of black money.
Black money from crime arises from many activities like illegal mining, illegal felling of forests, illicit liquor trade, embezzlement, extortion, cheating and financial fraud, corruption and through various organised crimes like drug trafficking, arms running, smuggling, prostitution rackets etc.
Though the Income Tax department is the main agency to detect undisclosed incomes, its performance on the front of tax evasion detected, and tax realised and prosecutions launched, is dismal.
There is so much of conspicuous consumption and vulgar display of wealth going on in the society and one wonders how tax authorities do not look into these. Even a simple measure like asking the income tax payees to disclose their foreign bank accounts, along with an averment that taxes have been paid on such deposits may yield rich dividends.
The government can also think of a one-time amnesty scheme whereby the assets held in foreign banks can be regularised if the moneys are repatriated and invested in infrastructure projects. This is the essence of the scheme, but details have to be worked out.
As regards black money stashed away in foreign banks, the various bilateral tax agreements signed are of not much use, because they provide information only if there is a crime involved. And tax evasion is not treated as a crime. Even our own Prevention of Money Laundering Act does not treat tax evasion as a crime. And Income Tax authorities have no time or expertise to prove a crime in generating black money.
But certainly our finance ministry, law department and the Reserve Bank could impose strict discipline on foreign banks operating in India and who are helping their Indian clients to evade tax, by threats of prosecution.
US authorities in the course of last two years, have imposed penalties of $740 million on UBS Bank, $1.9 billion on HSBC, and $2.6 billion on Credit Suisse Bank respectively under threat of prosecution, for having helped US tax payers to evade taxes.
Why cannot India, the fourth largest economy, follow the US example?
Enforcement Directorate administers the Prevention of Money Laundering Act 2002, which has already undergone three amendments – in 2005, 2009 and in 2012. There are 28 scheduled crimes listed under the Act, but the director of Enforcement gets jurisdiction to act only when authorities like police, excise, customs and forest officials establish that a crime is involved in generating the money.
The director can then attach and forfeit the property acquired through such money. Data relating to persons arrested and prosecutions launched by the Directorate is dismal, though in 2013-14 it has provisionally attached assets worth Rs 1,759 crores in 127 cases, half of the amount coming from cases in Andhra Pradesh.
Now, the SIT can prove to be effective if it closely monitors and guides the investigations into a dozen high profile cases of black money and holds individual officers accountable for completion of the cases.
Cosmetic steps won’t suffice, says Prof K. Nageswar, Independent MLC
Though the Union Cabinet has constituted the Special Investigating Team (SIT) to implement the decision of the Supreme Court regarding black money stashed abroad, it is a complex problem.
There is no dearth of committees, studies or investigation teams. While welcoming the SIT, one should also call for radical measures to tackle the menace of black money.
The nation’s attention is often drawn to the wealth stashed abroad as it triggers patriotic emotions. But, the ruling establishment is often oblivious of the fact that major part of the black money generated in India is parked within the country. The nexus between politicians, businessmen, bureaucrats and criminals is at the root of this.
A host of legal and illegal activities generate black money and stern measures are needed at the source of generation, possession and exchange of black money across entities and systems.
Certain sectors and activities are more vulnerable to black money. They include real estate, gold and jewellery trade, financial markets, public procurement, cash economy, informal economy, international trade, corruption in government, organised crime syndicates, smuggling, drug trade etc.
Manipulation of accounts and records is the means of generating and protecting black money. The corrupt electoral system also thrives on the black economy.
India needs a strong and comprehensive framework to tackle this menace. This should include active participation in the international crusade against tax havens. A mere fishing expedition will not help in transacting information from foreign countries.
Regarding Indian wealth stashed away abroad, the government should approach foreign countries with concrete information supported by strong investigation proving criminal intent behind this illicit money flow. Thanks to the global recession and the threat of terrorism, the global eco system is more conducive than ever before for unearthing such illicit wealth.
The national framework to curb black money should include appropriate legislative framework with effective implementation, strengthening the institutions that deal with black money, training human resources and sector-specific policy initiatives that ensure a transparent and legitimate economy.
Such measures can include land and other property prices reflecting prevailing market prices, tracking benami transactions, confiscation of benami properties, keeping tabs on underselling of properties, under invoicing of exports, over invoicing of imports, preventing money laundering etc.
A comprehensive electoral reform to check money power that should include proportional representation is urgently required. The political system is providing a protective cover for the black economy as the electoral system is driven by massive money power.
Electoral reforms should break this symbiotic relationship between the polity and black money. In the post liberalization phase, the management of natural resources created a nexus between the state and the market. Allocation of natural resources like land, minerals, spectrum etc., has resulted in large-scale illicit transactions creating a pernicious web of black economy.
Introduction of transparent and competitive bidding for such allocations shall plug this source to a great extent. Even in the free market economy, the governments are big spenders. For instance, Rs 7 lakh crores were spent during the 11th plan on flagship schemes alone. Leakages and pilferage in public spending create an aura for black economy.
Measures like electronic governance, effective grievance redressal system, protection to whistle blowers, proper implementation of Right to Information Act etc., are essential to check government corruption. Mere cosmetic measures will not suffice. Radical measures are needed to comprehensively fight this menace. A strong political commitment is vital for this.
