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This article was written by Shivesh Raj Jaiswal, a student of RMLNLU.
The very word “Black” in the term “Black Money” indicates that something is illicit or wrong with this entity. And that illicitness is the way this money is acquired thus making it black money. When the issue of black money is under consideration , it reminds me of the garland of notes which were presented to Kumari Mayawati when she was the Chief Minister of Uttar Pradesh. Since independence, many attempts through legislations have been made by different governments in India to curb this vice but none of them have hitherto been able to completely achieve their objectives.
Nobody really knows the amount of black money in India. Various guesses put it at a fifth to a third of the Rs 17 trillion currencies in circulation (about US $ 250 billion). On top of true black money, counterfeit currency plays a largely similar role and is a widely acknowledged problem. Various formal estimates exist on the amount of counterfeit currency in India, ranging from four to 0.004 counterfeit pieces per thousand bills in circulation.
Thus, the question again enquires my soul why we are still suffering from this monstrous element of society which is unjustifiably and indirectly grabbing the piece of bread from the mouth of the poor. Prevalence of Black money in the economy leads to the unfair distribution of wealth in the country or state. Whenever a politician or any bureaucrat acquires an unaccounted sum of money or illegally takes his undeserving share from the funds allotted by the government for the enrichment, nourishment and welfare of the poor he indirectly kicks on the hapless belly of those vulnerable people who are gazing at the ray of sun in the hope of getting help from the sovereign to improve their condition. Therefore, the process of the “The Rich becoming more Richer and the Poor becoming more vulnerable” continues.
Scams and Corruptions of the previous Government
One day, I began to analyze the steps taken by different governments to curb Black money in India. Not letting myself to delve too much in the history I only compared the previous government and the present one on this eminently important issue. In that contemplation I found 2G spectrum Scam (2008), Satyam Scam (2009), Commonwealth Games Scam (2010), Coal Scam (2012), Chopper Scam (2012), Tatra truck scam (2012), Adarsh Scam (2012) and many more which shamelessly appeared in the Congress Government in their previous regime. The list of scams under Congress UPA government is too long and looks never ending. A few more in the list are Telgi Scam, Insurance Scam, Telecom Scam (Sukh Ram), Fodder scam, Ketan Parekh scandal, Taj Corrodor case, Bombay Stock Exchange fraud etc. Those scams ranged from Defense sector to Sports, from IT sector to Housing scam and many more incidents of corruption.
Different Committee’s effort towards Black Money:
According to Transparency International, which publishes a Corruption Perception Index, about Rs. 21,000 crore ($ 4,108 billion) annually is estimated to exchange hands in the form of bribery in the country. Government efforts towards control on tax evasion are continuous but all are unsuccessful in one way or the other. The legal and administrative changes were proposed by many experts and committees. They were Taxation enquiry commission 1953-54, proposal for reform of the Indian Tax administration Enquiry Committee 1958, the studies by the Administrative Reforms Commission on direct Tax Administration 1969, Direct Taxes Enquiry Committee, 1971 etc plug loopholes for making tax realization effective and for imposing penalties for tax evasion. Similarly, efforts have been made to strengthen and streamline the machinery for tax administration for better compliance with tax laws. This was the analysis of Dr Lila Jain.
A large number of legal administrative measures have been taken to deal with tax evasion. In 1936, the Ayers Committee made a review of the income tax system in India. The recommendations sought to strengthen the machinery to deal with fraudulent evasion as well as legal avoidance. Another category of measures fall various steps taken since 1946 for unearthing that part of black wealth which is kept in monetary form. The concept of mixed economy has been adopted to get benefits of private and public enterprises. But the expectations had failed just because of the economic ills especially the black money. The black money crisis has generated a parallel economy in the country which is damaging the efforts of economic development. This kind of money is earned by losing all human and moral values which was the sound base of Indian Culture.
Mr. Gandhi Ved in his article named ‘Tax Burden on Indian Agriculture’ in Economic and Political Weekly analyzed in his own language:“This is not to deny that the practical administrative difficulties in taxing a large part of the agriculture population when the population is illiterate, tax officials are scarce, and tax compliance is rather weak”
Oaths and Propaganda of NDA Government
In recent past, new government revived the issue of repatriating each penny of illicit funds stashed abroad by a great promise as an election agenda. Hence, the need of the hour is a multi-pronged strategy including joining the global crusade against black money, creating an appropriate legislative frame work, setting up institutions for dealing with illicit money, developing systems to implementation, and imparting skills for effective action. Therefore, it is required to deal with legal treatise to unearth illicit transfer outside the country and repatriating it back to India.
During the propaganda and advertisement time before the Loksabha election, 2014, Mr. Narendra Modi as BJP’s Prime Ministerial candidate had promised to curb corruption and take steps to bring back the illicit money stashed in tax havens within 100 days of his new regime. Even the repeatedly promising in the run up to election was heard that each person will get Rs 15 to 20 lakh rupees if all the black money is brought back to the country. Repatriation of black money is a commitment to the countrymen as said by Prime Minister in “Mann Ki Baat”, his popular radio address to the nation. But repatriation of this illicit funds to India or evens its discovery, is a hard nut to crack because of legal intricacies of tax treaties. While the previous governmental efforts have resulted in disparate estimations, some experts even argue that this illicit money has been laundered back into India through foreign investments. Even if we assume that the government could recover such large stashed money from foreign banks, the net outcome would be considered a national asset and go straight into the hands of the state. Millions of Indians, however, enthusiastically propagate a grown –up version of happy life ever after. Whether BJP government really whole heartedly wants to bring back the black money or they want them to be stuck merely in legal intricacies just involving themselves in political gimmick and forge assurance to the people. But Indians expect that the government once cracks the whip and bring this money home, India will cease to be a poor country and will occupy its rightful place among the superpowers of the world. It seems that the government is actively chasing behind something invisible object while fighting against black money. Undoubtedly it is there, but the government is not able to trace its correct figure. Definitely, there is an anomaly in the amount of black money, but to determining and recovering it becomes a very complicated task for the government. That may be the reason, the government is unable to disclose the exact amount stashed in abroad.
Steps taken by NDA Government:
SIT (Special Investigation Team) on Black Money
In 2009, Senior Advocate and former law minister Mr. Ram Jethmalani along with many other well known citizens filed a Writ Petition in the Supreme Court seeking the court’s order to bring back black money veiled in many foreign countries (eg-Switzerland). In January 2011, the Supreme Court inquired why the names of those who have stashed money in the Liechtenstein Bank have not been disclosed. On 04 July, 2011 Supreme Court ordered the appointment of a Special Investigation Team (SIT). In April 2014, Indian Government disclosed to the Supreme Court the names of 26 people who had accounts in banks in Liechtenstein, as revealed by the German authorities. Mean time, UPA government regime was over and new NDA government came to power in May, 2014. Soon after coming to the power, the first major decision Modi Government took was to form a Special Investigation Team (SIT). But, why it is so delayed to set up an investigating team even the Supreme Court ordered in 2011. According to BJP government, UPA government delayed to form investigating team to save somebody in the government. During October 2014, Indian Government submitted the names of three people in an affidavit to the Supreme Court who have black money accounts in foreign countries. But on the very next day, Supreme Court of India orders the Government to reveal all the names of black money account holders which they had received from various countries e.g. Germany. The honorable bench of the Supreme Court also asked the Centre not to indulge in any kind of probe rather just passes the names to them and Supreme Court will pass the order for further probe. Following the order, Government of India submitted the names of 627 people in the Supreme Court of India in a sealed envelope on 29 October 2014.
Opening of Jan Dhan Accounts under the scheme of Jan Dhan Yojana
According to my analysis these were the planned steps of the NDA government. This very scheme was announced during the Independence day speech of 15 August, 2014 and upto now over 27.64 crores account have been opened. The opening of Jan-dhan accounts in such a massive numbers is eminently beneficial to keep a check on the Black Economy. Besides this the Government shall now be able to directly transfer the benefits to the bank accounts of the citizens which will reduce the people’s suffering caused by middle-mens and illicit brokers who were illegally grabbing the share of funds allotted to general public. The Jan dhan accounts have very far-sighted relationship with the Government’s boldly taken step of demonetization. Now for the exchange of Rs.1000 and Rs.500 notes there was indispensible need of either bank accounts or generally “banks” therefore the opening of bank accounts had more or less reduced the negative short term repercussions of demonetization to a great extent.
Renegotiation of tax treaties and Automatic Information Exchange Agreement with Tax Heavens
The NDA government had renegotiated the Double Tax Avoidance Agreement (DTAA) with Mauritius to impose Capital Gains Tax if such Capital Asset is situated in India. The Narendra Modi Government also negotiated an Automatic Information Exchange Agreement with Switzerland. Agreements are also being negotiated with other tax havens. From 2017, Organisation of Economic Cooperation and Development (OECD) countries have agreed to share information on foreign account holders with their home countries. These tax heavens in different parts of the world had always been a so called ‘Safe-zone’ for tax evaders therefore these treaties is eminently important to keep a check on their illicit transaction to curb black money as well as to safeguard our currency value in the international market.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 for Foreign Black Money
The scheme was launched to bring back black money stashed in foreign countries and tax havens. The scheme ended on 30 September, 2015. This Act also had various stringent provisions for penalty and prosecution of foreign black money holders unearthed during future investigation by the tax department. In an article published by “The Hindu” on the 11th of May, 2015, ten salient features were told about this bill:
- Tax on all foreign income will have to be paid at the flat rate of 30 per cent without any exemption, deduction, set off or carry forward losses that the Income Tax Act permits.
- Enhanced punishment of jail for 3-10 years for willful evasion of tax on foreign income along with a penalty equal to three times the amount of tax evaded or 90 per cent of the undisclosed income or the value of the asset.
- There is a limited compliance window offer. Offenders would have to pay tax at the rate of 30 per cent but concessional penalty would be equal to the tax amount.
- Failure to file returns of foreign income or assets will attract a penalty of Rs. 10 lakh.
- Second and subsequent offence will be punishable with rigorous imprisonment of 3-10 years with a fine of up to Rs. 1 crore.
- Undisclosed holdings of less than 5 lakhs at any time during a year not reported out of oversight or ignorance will not entail penalty or prosecution.
- The Bill empowers the Centre to enter into agreements with other countries for the exchange of information, recovery of tax and avoidance of double taxation.
- To include tax evasion under the proposed legislation as a scheduled offence the Bill proposes to amend the Prevention of Money Laundering Act, 2002.
- The right to appeal will be to the ‘Income Tax Appellate Tribunal’ and to jurisdictional High Courts and the Supreme Court on substantial questions of law.
- The tax authorities will have powers of discovery and inspection, issue of summons, enforcement of attendance, production of evidence and impounding of account books and documents.
The Income Disclosure Scheme, 2016
The income disclosure scheme had acted as an opportunity to the sinners of black economy to whitewash their sins by declaring their undisclosed assets and property. The IDS scheme which opened on June 1 gave a chance to black money holders to come clean by declaring the assets by September 30 and paying tax and penalty of 45 per cent on it. The Narendra Modi Government wanted to capture the entire parallel economy flowing in the system of which is estimated about Rs 7 lakh crores in India. Although the government was upset with the output of IDS scheme yet there were some positive indications. Though the Income Tax department had identified 90 lakh high value transactions without PAN, the final disclosure of black money was to the tune of Rs 65,250 crores.
Penalty on Real Estate Transactions undertaken in Cash exceeding Rs 20,000
With the significant changes in tax laws, any cash transaction worth Rs 20,000 or above for sale or purchase in real estate, including agricultural land, is under income tax (I-T) scanner and they are liable to pay penalty . Tax experts believe that the Government’s move on this would ensure more transparency in the real estate businesses and wrong doers earning crores of unaccounted money involved in the litigation process will come to an end.
In order to curb the generation of black money by way of dealings in cash in immovable property transactions, Section 269 of the Income-tax Act has brought out some changes for the real estate sector. As per the new tax law by Central Board of Direct Taxes (CBDT), any transaction in real estate, including agricultural land, shall be required to be made through account payee cheque or real time gross settlement(RTGS) or electronic funds transfer if the amount is Rs 20,000/- or above. If transaction is done in cash then penalty of an amount equal to such cash transaction will be imposed on seller who accepts cash or refund of advance is made in cash by the seller of property.
Tax Collection at Source on Cash Sales exceeding Rs 2 lakh.
In order to curb cash economy, Finance Act 2016 has amended Section 260C of the Income Tax Act to provide that the seller shall collect tax at the rate of one percent from the purchaser on sale in cash of certain goods or provision of services exceeding two lakh rupees. This shall also be very beneficial in curbing Black economy.
Benami Transaction (Prohibition) Amendment Bill
The Parliament passed the Benami Transactions (Prohibition) Amendment Act, 2016 (BTP Amendment Act) in August. It came into force from November 1, 2016. The act provides that the ‘Benamidar’ (owner of Benami Property) or any other person who abets other person to enter into such transactions will face rigorous punishments ranging from one to seven years in jail. Further, the person may be liable for a fine up to 25% of the fair market value of the property. The new law seeks to give more teeth to the authorities to curb benami transactions.
Eminent experts and economists define demonetization as an act of striping a currency unit of its status as legal tender or in other words when any government withdraws the legal tender rights of any denomination of currency, it is known as demonetization. The Prime Minister announced on 8th of November, 2016 about the withdrawal of legal tender of 500 and 1000 currency note in the late evening. The government claimed that this demonetization is required for the following reasons:-
- For making the black money
- For stopping the funding of terrorism.
- For eradicating the problem of counterfeit currency.
- For reducing Corruption.
- For converting India into less cash economy.
In terms of value, the annual report of the Reserve bank of India (RBI) of 31st march 2016 stated that total bank notes in circulation valued to 16.42 lakh crore of Rs.500 and Rs.1000 banknotes.
Critical Analysis of Demonetization
There are many Politicians, experts, economists and other eminent persons who had criticized this revolutionary attempt of the NDA government. Demonetization step in itself was a bold step to be taken by any government. History reveals that whenever this drastic step is taken in any country it had led to some negative repercussions eg- Nigeria, Ghana, Pakistan, Zimbabwe, North Korea etc. In this process of criticism Mr. Kobad Ghandy in his article published in Economic and political weekly titled “Demonetization: Two steps forward and one step back” tried to emphasize on the loopholes of this step:-
“What Raghuram Rajan, the ex-governor of the Reserve Bank of India (RBI), said in January 2016 is strikingly relevant to what we see now with the demonetization exercise. The recent months has seen millions of poor and the middle class people, with no cash to buy foods and medicines, standing in long queues to access their own money from the ATMs and banks, while the bigwigs of the Bhartiya Janata Party (BJP) were celebrating a five-day wedding ceremony of an ex-BJP minister (also famous as the Bellary mining mafia chief) Janardhana Reddy’s daughter. Neither the Reddys nor his guests had any worry about converting their notes, though this function began barely four days after the demonetization announcement.”
These allegations and facts also compelled my mind to get lost in deep contemplation and thought process whether this government is completely sincere and honest in its deed. This brings to my mind the deposition of about one and half crore rupees only consisting Rs 500 and 1000 rupees notes in BJP account some couple of days earlier to the demonetization announcement. Was it an indication of dishonest practice on the part of the ruling party or was it just a co incidence? this question still lies unanswered. But in my ultimate analysis, this broad and nationwide step is very challenging for any government to take. It somewhere shows the sincerity (whether real or not) of the ruling government about the consideration of nation’s welfare and keeping its words uttered during propaganda before election (although many promises are still left to be fulfilled). This step was very important since it had the potential to whitewash atleast cash-based-black-money. It had definitely hampered the flow of counterfeit currency in the country for some duration of time, the new printed notes are with more complex and peculiar virtues and are not easy to be counterfeited. This has also provided the government with an estimation of the illicit and parallel running black economy therefore, this estimation will help in an eminent degree in planning any economic model or in implementing any financial or monetary plan.
GDP (Gross Domestic Product) remained almost stable; defeating the demonetization estimated repercussions
A very recent statistics put forth by the CSO about the estimation of GDP (Gross Domestic Product) for the financial year 2016-17 at 7.1 %. This shows that our economy is not that much hampered as alleged and apprehended by some opposition politicians and economists. The numbers are vindication that demonetization didn’t have a major impact on the economy. Congress is alleging that these GDP figures are highly suspected. I was also extremely surprised observing this GDP estimated figures but my conscience got a reasonable backing after visiting the editorial column of “The Hindu Newspaper” dated 7th March, 2017 written by Aarti Krishnan titled “Cracking the GDP Mystery-
“..But commentators who believed that the economy has suffered a deliberate blow from the note ban are not willing to rest their case here. They have flagged a long list of issues with these GDP numbers, apart from hinting that the numbers are fudged”….Now she further clarifies with latent economic reason why the GDP is still shows positive signs in spite of Demonetization of high value currency notes –
“First the skeptics ask, how did the GDP growth for FY17 turn out to be so high? The number7.1 percent is unchanged from the CSO’s initial estimates and is so well above the 6.5% – 6.8% growth estimated by most private forecasters. Is the CSO implying that vacuuming up 86% of cash in circulation had no impact on the economy ? ……….what lifts the GDP is the strong 12.3 % surge in the indirect taxes that CSO estimates for the fiscal.”
It is as easy to criticize any government for its policy as ruthlessly commenting on a batsman for getting beaten by a delivery of the bowler playing in a pressure ridden situation during a cricket match. But when a batsman steps out of its crease in order to attempt a big shot irrespective of the worry for his fall of wicket, this very attempt shows his devotion for the welfare of his team. Same is the case with our Prime minister who is playing an enormous inning in his regime. I am not a for granted supporter of our honorable Prime minister but this view has developed after a long critical analysis and evaluation of all his political steps taken since the very beginning of his tenure.
The flow of black money in India will not stop until and unless a person stops taking “katiya connection” i.e illegally using electric wires connected to high-tension wire for electric flow to his home, unless a tea or water bottle vendor in a railway compartment restricts himself taking more price than the printed MRP on the commodity, unless every parent in this nation will stop giving donations to the cash-hungry-college administration for his ward’s admission, unless each and every citizen of this nation take an oath to not involve himself or herself in any illicit way or acquiring wealth or any benefit.
- Green, Russell A. 2016, “Will India’s Currency Exchange worked as Hoped? Issue Brief No.11.16.16 Rice University’s Baker institute for public policy, Houstan, Texas.
- Ashish Kumar Tripathi, Demonetization Challenges for Rural India.
- Bappaditya Mukhopadhyay , “Understanding Cashless payment in India”.
- Kobad Gandy, “Demonetization; One step Forward, Two steps Back” Economic and political weekly.
- Lila Jain,“Black Money- a darker side of the economy” Indian Journal of Applied Research.
- Arun Kumar “Estimation of the size of the Black Economy in india, 1996-2012”Economic and political Weekly.