From UPSC perspective, the following things are important :
Prelims level : Nothing much
Mains level : Tackling black money in India
India’s fight against foreign black money is unfinished.
- The problem itself was misdiagnosed.
- The legislative measures are bereft of constitutional and economic common sense.
- They relied too little on persuasion, and too much on browbeating.
State of Black Money
- Black money Law: tax rate – At the minimum tax rate of 60%, the law has less incentive for the hoarders to come clean.
- Stats – As of May 2019, the total untaxed foreign assets mined was ₹12,500 crore.
- Recovery – Even this recovery was aided greatly by international exposes such as the Panama Papers.
- Indonesia – Indonesia recovered about ₹25 lakh crore under similar schemes.
- Tough laws – government passed an even more confiscatory law, the Fugitive Economic Offenders Act.
- Income Tax Act – is provided for up to three times the penalty on escaped tax.
- Willful attempts to evade taxes have been punishable with imprisonment of up to seven years.
- Automatic exchange tax information – under a protocol for, India is now receiving data from Switzerland.
- An amendment requiring all citizens to disclose foreign assets with their domestic tax returns.
Post-May 2014 tax control policy
- It is different only in three aspects, all constitutionally suspect.
- Retrospective application of tax and penal laws are so confiscatory and discriminatory that they walk over a citizen’s right to life, carry on business and own property.
- Shifting the burden of proof onto the citizen to establish that he is not an offender.
- Citizens can be subjected to criminal trials without the taxman proving that there has been tax evasion.
- Enforcement Directorate secured a conviction in less than 1% of the case but attached assets worth ₹29,468 crores.
- The agency’s equivalents in the U.S. and the U.K. secured a conviction in about 50% cases.
- Income Tax Department’s records show near 2% conviction rates in Financial Year (FY) 2016-2017.
- Comptroller and Auditor General report showed that in FY 2016-2017, the number of raids more than doubled, as compared to FY 2013-2014. But in the same period, the undisclosed income detected was less than one-fourth the amount during the latter period.
Black money estimates
- No clear estimate of black money owned by Indians and stashed abroad is available.
- Between 2008 and 2012, various reports quoted anywhere between $500 billion and $1.5 trillion relying on estimates of a Swiss Bankers Association (SBA) report.
- James Nason, an officer of the SBA, has said that the SBA had never published any such report.
- In 2019, the National Institute of Financial Management reported to the Lok Sabha Standing Committee on Finance, that the estimate is about $216 billion-$490 billion. This is one-seventh the estimate quoted ahead of the 2014 elections.
- Misdiagnosed – India’s foreign black money problem was misdiagnosed and unverified, exaggerated numbers went into satisfying Parliament that draconian financial laws are justified.
- Demonetisation – it is labelled by international media as a ‘massive theft of people’s property’.
- The announcement that ₹15 lakh will be deposited in each citizen’s account was found to be a political bait.
- Being an intrusive, browbeating confiscator does not enrich Indians. It doesn’t.
- The draconian fiscal laws must be repealed.
- Increased international cooperation, technological advances, and banking penetration implode black money more than any law or sermon on patriotism.
- India’s war on black money can only be won through democratic, persuasive and economically-sound means.