The government hasn’t done enough to bust popular fictions about black money.
The Supreme Court has thrown out the government’s plea to wind down the special investigation team set up in 2011 to investigate and prosecute “all” cases of black money, and bring back the undeclared funds stashed abroad by Indian citizens. The court castigated the government for doing no more than “filing one report” in this mission, which it believes could reduce the “tax burden on [the] common man” by 30 per cent.
It let L.K. Advani and others peddle a report by the Washington-based Global Financial Integrity, which claimed that the proportion of black money in the economy has actually increased from 27.4 per cent of the GDP during India’s pre-reform days to 42.4 per cent now. But not only is this back-of-the-envelope calculation seriously flawed, it is at wide odds with National Institute of Financial Management figures, according to which the proportion has drastically reduced, and continues to fall, from 30 per cent in the 1970s to 17 per cent now.
This reduction is due to tax reform and rationalisation, systemic solutions to evasion. The success of this strategy is clear from the fact that the tax to GDP ratio has increased from 15 per cent in 1990-91 to 17.3 per cent in 2012-13. While it may suit political parties to make a bogey out of black money, the real change will come with better compliance and reforms like the direct taxes code and goods and services tax.
It is also clear that tax authorities haven’t stepped up to the task of tackling the existing evasion problem. While trying to emulate the track record of the US and other countries that have successfully collected taxes and prosecuted hidden offshore accounts, they show no appreciation of the spadework that goes into a successful anti-evasion campaign.
Not even a domestic PSU bank, let alone a private Swiss one, would entertain wild fishing expeditions and part with client data without the authorities presenting compelling evidence of criminality. It was only after sustained efforts, criminal investigations into several Swiss banks, including Credit Suisse, that the US justice department and internal revenue service got the Swiss government and banks to cooperate and agree to participating in an amnesty scheme. It didn’t come easily to the US, and it won’t to India either.
