India's 'black money': 'Hoodwinking' the people?
Thanks to opposition and public ire over a series of corruption scandals, "black money" is back in the spotlight. The Supreme Court has been chiding the beleaguered government for not doing enough to unearth illicit money. "Is there no basis to figure out black money?" the court wondered on Thursday. "What is the source of black money, which has been stashed away in foreign banks? Is it from arms dealing, drug peddling or smuggling?"
Strong words indeed. But they may not be enough to uncover India's biggest and longest-running scandal. This week, Finance Minister Pranab Mukherjee unveiled what critics said was a to check the "menace of black money". This includes joining a "global crusade" against it, creating appropriate legislation and institutions to deal with such funds and imparting skills to officers tasked with detecting such funds. In effect, what the government is saying is that after 63 years of independence, India has no institutions or trained people available to curb a brazen and thriving underground economy which rewards tax evaders, humiliates tax payers and widens inequity.
There is enough evidence to show that there is little political or administrative will to curb "black money". India has double taxation treaties with 79 countries. But 74 of these treaties need to be tweaked significantly to include exchange of banking information between the countries. (Letters have been issued to 65 of these countries to initiate negotiation, says the minister.) India has apparently chosen 22 countries and tax havens for negotiating and signing exchanging tax information. Last year, a law to prevent money laundering was given more teeth - but laws are often flouted with impunity in the world's largest democracy. The government says it plans to hone direct tax laws further to begin taxing deposits in foreign banks and interests in foreign trusts.
It also talks about a new amnesty scheme for "black money", which is really a slap in the face of the honest tax payer. Since Independence, the government has offered the "voluntary disclosure scheme" six times, most recently in 1997. Less than $1bn was declared, which most experts believe was a fraction of the black money in the market at that time. India's autonomous federal auditors once remarked that the disclosure schemes encourage people to become "habitual tax offenders", knowing full well that they can hoard money without paying income taxes.
Independent economists believe that despite the government's recent noises, "black money" will continue to blight India and its economy. For one, it is a systemic problem. Those who don't pay taxes or stash away illicit money overseas comprise the political and professional creme de la creme - politicians, bureaucrats, businessmen, doctors, lawyers, chartered accountants, judges. That the government is not keen upon cracking down on illicit capital flows was evident, analysts say, when, in 2008, it refused to accept a compact disc from Germany containing names of account holders in a Liechtenstein bank. Last year, under opposition pressure, the government accepted the CD, but the 26 names of Indian account holders in it. Many believe that a year is enough for the account holders to move their money out of the bank. "Unless there is political will to dig out black money, nothing will happen," says Arun Kumar of Delhi's Jawaharlal Nehru University, who has investigated India's underground economy in detail. And the humiliation of the honest citizen will continue.
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