Opinion Supreme Court versus the state?
The aam admi is the major culprit in generating black income,but it is a bit unseemly to make a federal case of this reality. Case dismissed.
In the Supreme Courts recent black-money order,the case against the state is made as follows. First,by following neo-liberal policies,the state has destroyed governance. The paradigm of governance that has emerged,over the past three decades,prioritises the market,and its natural course,over any degree of control of it by the state.
Second,that this lack of governance has encouraged both the generation of black money and its transfer to tax havens abroad. The issue of unaccounted monies held by nationals,and other legal entities,in foreign banks,is of primordial importance to the welfare of the citizens. The quantum of such monies may be rough indicators of the weakness of the state,in terms of both crime prevention,and also of tax collection. Depending on the volume of such monies,and the number of incidents through which such monies are generated and secreted away,it may very well reveal the degree of softness of the state.
Third,that not collecting the large quanta of monies stashed abroad would also indicate a substantial weakness in the capacity of the state in collection of taxes on incomes generated by individuals and other legal entities within the country.
Fourth,that this black money prevents the government from serving the aam admi: In addition,such large amounts of unaccounted monies would also lead to a natural suspicion that they have been transferred out of the country in order to evade payment of taxes,thereby depleting the capacity of the nation to undertake many tasks that are in public interest.
Fifth,that this generation of black money is not only anti-national,but threatens the security of the state. The worries of this court are also with regard to the nature of activities that such monies may engender,both in terms of the concentration of economic power,and also the fact that such monies may be transferred to groups and individuals who may use them for unlawful activities that are extremely dangerous to the nation,including actions against the state.
Sixth,and finally,that given these circumstances and tragic reality,the court has to step into a domain not necessarily its own. By doing so,the court is rendering an important service to the nation stopping the flow of black money,recovering it,and thereby engendering a new order: The resources of this court are scarce,and it is over-burdened with the task of rendering justice in well over a lakh of cases every year. Nevertheless,this court is bound to uphold the Constitution,and its own burdens,excessive as they already are,cannot become an excuse for it to not perform that task. In a country where most of its people are uneducated and illiterate,suffering from hunger and squalor,the retraction of the monitoring of these matters by this court would be unconscionable. (All quotes are from the order.)
Black money comes via tax evasion; while tax evasion is illegal,sometimes it can be in response to bad laws. When Indira Gandhi instituted a 97 per cent marginal tax rate,practically every bureaucrat who implemented the law was creating black money. That was then; as also was the sad reality when the Supreme Court,in effect,rubber-stamped the imposition of the Emergency.
How valid is the Supreme Courts black-money case against the government? Not very. First,the size of income-tax evasion is relatively small,and much smaller than the Supreme Courts contention of astronomical sums. In 2010-11,total income tax payment,if every individual was fully compliant,and paid all the taxes owed,would have been close to Rs 332,000 crore. Actual tax collected was around Rs 150,000 crore and so black income was around Rs 184,000 crore,or about 2.5 per cent of Indias GDP. Not a small amount,$40 billion,but not astronomical.
Most interesting is the distribution of this black money who generates it? Not surprisingly,the group with the largest aggregate income: the aam admi. The poorest income tax group,Rs 2-5 lakh,accounts for close to 80 per cent of all taxpayers,and close to 63 per cent of all taxable income. It is also the group with a large proportion of self-employed individuals. And also the group with the lowest tax compliance rate around 36 per cent,or slightly more than one-third of those eligible to pay taxes in this group,actually pay taxes. This group does not come under the TDS automatic-payment system; it comprises of lawyers,doctors,and shopkeepers.
The richest group,the one I infer that the Supreme Court thinks is not paying taxes and sending this money overseas,actually has the highest compliance rate: around 60 per cent. Black income generated in this group? About Rs 37,000 crore in 2010,or only $8 billion annually. Astronomical? By no stretch of the imagination. Even the total amount of income-tax evasion black money generated each year in neo-liberal India is not astronomical.
Well-meaning people often confuse the low level of the population paying taxes with black money. The reason for the former is that India is not a rich country; one has to be in the top 20 per cent of the working non-agriculture economy to be eligible to pay direct taxes. And about 40 per cent of Indians pay taxes,and most of the non-compliant are the not-so-rich middle-income people. The aam admi is the number-one culprit in generating black income,but it is a bit unseemly to make a federal case of this reality.
Case dismissed.
The writer is chairman of Oxus Investments,an emerging market advisory and fund management firm
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