In its
latest quest to bust India's estimated
US$50-billion-plus "parallel economy", the central
government has declared the possibility of issuing
special bonds to draw "black money" into the
official economy - without giving amnesty to tax
dodgers, as earlier schemes had controversially
done.
The Law Ministry is studying the
legal basis of the no-amnesty proposal, after the
Supreme Court had frowned on successive
foreign ministers announcing
voluntary disclosure schemes that taxation expert
committees felt had only helped to legitimize
money-laundering.
"With maybe about 1%
interest or no interest, the bonds are proposed to
be repayable after three or five years,"
Mumbai-based tax consultant Lalji Gajra told Asia
Times Online. "Big black-money hoarders will
definitely go in for the scheme."
India's
black money - earnings unreported and therefore
untaxed - is a national disease that makes the
direct tax collection of $45.32 billion a fraction
of what it ought to be in Asia's third-largest
economy. Experts estimate that the amount of
undeclared income ranges from 5% to a monster 20%
of gross domestic product.
The unaccounted
money also feeds India's rampant corruption
machine, including election campaigns. A study by
the Mumbai-based Center for Monitoring Indian
Economics (CMIE) found that each parliamentary
poll generates between $10.19 billion and $11.33
billion of black money.
The CMIE said
revenue from income tax had a 14.7% growth during
April-December 2005, lower than the 21% increase
recorded year-on-year for 2004. A 30% increase is
projected for 2006.
Ahead of a two-day
parliamentary seminar on how the federal budget
should look, the left parties have accused the
government of lacking the will to track the black
money, which it says accounts for nearly one-third
of the economy.
In a country routinely
ranked by Transparency International as one of the
most corrupt in the world, tracking illegal wealth
becomes a constant challenge. Experts believe
tax-amnesty schemes treat the symptoms rather than
the roots of the disease.
Calling the
proposed special bond scheme part of outdated
measures, T C A Ramanujam, a former chief
commissioner of income tax, wrote in a recent
article that "honest taxpayers will shudder at the
thought of amnesty schemes such as zero interest
bonds or 'no questions asked' investments. There
is a need for changing the outlook with regard to
the problem of black money."
He feels the
parallel economy should be more realistically
called the "informal economy", taking into account
how incomes such as those of immigrant labor help
improve the standard of living, but do not get
into the tax net.
Service providers such
as wealthy doctors and lawyers are easily the
bigger tax dodgers in a situation where owning a
mobile phone is among the criteria for having to
file income-tax returns. India is expected to have
more than 120 million mobile-phone users this
year, and car owners (another category having to
pay income tax) bought more than a million cars in
2005, but Indians with annual taxable income of
$22,600 number only 80,000, according to
Ramanujam.
Against such a deeply
entrenched tax-dodging background, the Income Tax
Department routinely stumbles into major tax
scams, such as one this month when officials
unearthed a $349 million black-money transaction
at just one branch (Fatehpuri) of the Federal Bank
of India in New Delhi.
The transaction was
part of the ubiquitously infamous hawala
route, South Asia's biggest illegal
money-transferring system, whereby funds are moved
across state and national borders through
non-banking methods, such as individuals using
codes. Similar tax scams were dug out in
Maharashtra and Gujarat, two of India's wealthiest
states. Daily hawala transactions are known
to run into billions of dollars, robbing the
government of taxes.
Black-money
laundering in India is a constantly evolving art,
with a recent development being investing hidden
funds in paintings. Tax officials raiding builders
in Mumbai this month said chartered accountants
were advising their clients to hide their black
money in art collections.
Officials said
their suspicions were aroused when they found that
a "small-time businessman" had invested about
$450,000 in a painting. They raided some of the
big fish in the city - builders - and found nearly
$11 million of undeclared income invested in
paintings bought in local art galleries.
Luxury cars are another giveaway, besides
purchasing real estate and jewelry - India is one
of the world's largest consumers of gold. But the
stock market could be the biggest and easiest
money-laundering avenue. Black money is turned
white through massive profits pocketed after
parting with a mere 10% capital gains tax.
This is why not everybody is greatly
impressed with the Indian stock market's
unprecedented bull run, not when sham trading of
stocks (insider information says one of India's
biggest and most controversial industrial houses
employs about 30 brokers only to rig share prices)
and dummy trading regularly produce big
scams.
After recent initial public-offering
scandals, such as the one unearthed last month
when a woman named Roopalben Panchal in Gujarat
reportedly opened 10,669 fake accounts, the
Securities and Exchange Board of India asked
market intermediaries (including banks,
non-banking financial companies, stockbrokers and
portfolio managers) to record major transactions,
including those above about $22,697.
A
Reserve Bank of India (RBI) circular dated
December 2, 2005, listed suspicious banking
activity for banks to be alerted to with regards
to black-money laundering. Banks are required to
report to the RBI with recommendations by the end
of March. But with banks themselves sometimes
found to be willing partners in major stock-market
scams, some of Asia's biggest black-money hoarders
still have sufficient reason to grin on their way
there.
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