Black Money – Domestic and International Efforts

Black Money – Domestic and International Efforts

[op-ed snap] Inaccurate diagnosis, draconian remedy

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Tackling black money in India

Context

India’s fight against foreign black money is unfinished. 

Challenges

  • 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.

Existing laws

  • 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. 

Results

  • 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.

Taking cognizance

  • 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.

Black Money – Domestic and International Efforts

Automatic Exchange of Information (AEOI) Programme

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Automatic Exchange of Information (AEOI) Programme

Mains level : Curbing black money


  • India has received the first tranche of details about financial accounts of its residents in Swiss banks under the automatic info exchange framework, the Switzerland government.

Automatic Exchange of Information (AEOI) Programme

  • India is all set to receive the bank account details under the AEOI programme.
  • In 2016, India and Switzerland had signed an information-sharing deal on bank accounts, which was to come in effect from January 2018.
  • This provides for exchange of information on financial accounts that are currently active as well as those accounts that were closed during 2018.
  • The next exchange would take place in September 2020.

Under high secrecy

  • This exchange of information is being carried out under the Common Reporting Standard (CRS), the global reporting standard for such exchange of information.
  • The CRS has been developed by the Organisation for Economic Cooperation and Development (OECD).
  • It takes care of aspects such as confidentiality rules and data safeguards.

Significance

  • In 2018, data from Zurich-based Swiss National Bank (SNB) had shown that after declining for three years, money parked by Indians in Swiss Banks rose 50 per cent to CHF (Swiss Franc) 1.02 billion (Rs 7,000 crore) in 2017 over the previous year.
  • India is among 75 countries with whom information on bank accounts will be shared this year.
  • The step is likely to shed more light on the wealth Indians have stashed away in Swiss bank accounts, for so long governed by strict local rules of secrecy.

Black Money – Domestic and International Efforts

Automatic Exchange of Information (AEOI) Regime

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Automatic Exchange of Information (AEOI) Regime

Mains level : Curbing black money

  • Banking details of Indians with accounts in Switzerland will be available to tax authorities as the automatic exchange of information regime kicks off between the two countries.
  • In 2016, India and Switzerland had signed an information-sharing deal on bank accounts, which was to come in effect from September 2019.
  • Both countries intend to start collecting data in accordance with the global AEOI standard in 2018 and to exchange it from 2019 onwards.

About AEOI

  • This automatic exchange of information (AEOI) is to be carried out under the Common Reporting Standard (CRS), the global reporting standard for such exchange of information.
  • It takes care of aspects such as confidentiality rules and data safeguards.
  • The CRS has been developed by the Organisation for Economic Cooperation and Development (OECD).
  • Under the agreement, India will not receive information on bank accounts prior to 2018.
  • Under the agreement both jurisdictions will inform each other of any relevant developments in respect to the implementation of the OECD Common Reporting Standard in their respective domestic laws.
  • Each jurisdiction confirms that it has informed the other jurisdiction about the modalities made available to persons making a voluntary disclosure of their financial assets.

Benefits of the regime

  • In 2018, data from Zurich-based Swiss National Bank (SNB) had shown that after declining for three years, money parked by Indians in Swiss Banks rose 50 per cent to CHF (Swiss Franc) 1.02 billion (Rs 7,000 crore) in 2017 over the previous year.
  • The step is likely to shed more light on the wealth Indians have stashed away in Swiss bank accounts, for so long governed by strict local rules of secrecy.
  • It is a significant step in the government’s fight against black money and the era of “Swiss bank secrecy” will finally be over.

Black Money – Domestic and International Efforts

Elephant Bonds

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Elephant Bonds

Mains level : Curbing black money

  • A high level government-appointed committee on trade and industry has suggested it to issue ‘Elephant Bonds’ to people for declaring undisclosed income to mandatorily invest 50%.

Elephant Bonds

  • Elephant Bonds are the 25-year sovereign bonds in which people declaring undisclosed income will be bound to invest 50 per cent.
  • The fund, made from these bonds, will be utilized only for infrastructure projects.
  • It is like an Amnesty scheme to help State treasury raising tax revenues, adding beneficiaries in tax base who have not declared their assets previously.

Are there any provisions in UN which can help us chase black money?

 United Nations Convention Against Corruption

Yes, there are a few. And they might help us get black money back in India. Let’s look at the history of such negotiations to learn more about them and hone your understanding for Probable questions for IAS Mains.

  1. Tough negotiations on this subject in Vienna, Austria, in 2003 was a vital part of the United Nations Convention Against Corruption (UNCAC).
  2. The first breakthrough came when the group established asset recovery as a “fundamental principle” of the convention.
  3. Then it was only a matter of laying a framework, in both civil and criminal law, for tracing, freezing, forfeiting and returning funds obtained through corrupt activities.
  4. What did the convention accomplish? Legal obstacles should be tackled with international cooperation rather than by domestic laws.
  5. Some of the relevant provisions of the convention are crucial to the question of recovery of assets.
  6. It provides that each state party shall take such measures as may be necessary to permit its competent authorities to give effect to an order of confiscation issued by a court of another state party.They are also required to share information with the competent authorities of another state, when necessary, to investigate, claim and recover proceeds of offences.

The UN, through its Office on Drugs and Crime, which leads the fight against illicit drugs and international crime, has been given the responsibility to implement the convention, particularly its assets recovery provisions.


Refining India’s approach

  1. In the case of India, difficulties may have arisen not in establishing that the sums amassed abroad belong to India, but in proving that the assets were illegally obtained.
  2. There is a need of domestic management and disposal of seized and confiscated assets and the management of the return and disposal of assets recovered in the context of international corruption cases.
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