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Elusive Black Money: REDEFINE EARNINGS, TAXES, By Shivaji Sarkar, 31 Oct, 2014 Print E-mail

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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