NON TAX PAID MONEY WITH

1. According to the Website ‘MillionFace,’ on account of considerable pressure, Swiss Banking Association in its report, 2006, had stated that Indian nationals have an accumulated deposit of $1456 billion with the Swiss Banks. The Report further says that nationals of countries who have extremely high bank deposits in Switzerland are:

India: $1,456 billion
Russia: $ 470 “
UK $ 390 “
Ukraine $ 100 “
China: $ 96 “
i.e., in Indian currency, with the present exchange rate, India has a deposit of Rs. 75,00,000 crores. Truly mind boggling.

2. The Website MillionFace further reports that “Recently, due to international pressure, the Swiss government agreed to disclose the names of the account holders, but only if the respective governments formally asked for it. The Indian government is not asking for the details. No marks for guessing why!”

3. This is a sensational news. Then why is it that the fourth estate ( both print and visual media ) has not reported the above revelation. Is it a hoax?

4. Assuming that what has been put out is correct, this is not the whole picture. Non tax paid money is also being deposited in a few other countries, where also, as in the case of Switzerland, no questions are asked on the source of the money or whether tax for the same has been paid in the country from which the money has originated. Then again within the country ( India ) a lot of non tax paid money is hoarded.

5. If the whole of Rs. 75,00.000 of Indian money with Swiss banks is repatriated to India, Rs. 25,00,000 crores is due to the Government of India @ rate of 30% tax.

6. As against the above, the total tax collection of Government of India in 2007-08 was Rs. 602,935 crores.

7. For a long time Switzerland has been the tax haven for ill gotten wealth of people from all countries. Attraction for people to deposit in Swiss banks is the total secrecy in keeping the bank accounts there. There is some legislation enabling banks to maintain secrecy of funds deposited with them. But the banks pay no interest on such deposits made.

8. The Swiss Bank accounts are operated with utmost secrecy. Coded numbers have to be used for accessing the accounts. If somebody who had deposited huge amounts and dies suddenly without the account code ( and authorization ) being given to somebody, obviously the money in the account would go to the bank concerned, at the cost of revenue to Indian Government.

9. Estimates of unaccounted money within India vary from 20% to 60% of GDP.

10. Fourth estate should organize intense debates of tax experts ( on how to deal with the matter pragmatically ) and sociologists ( on the motivations for creating non tax paid money and how to reduce if not prevent the creation of such money ). The scope of discussion should be on both non tax money hoarded within and outside the country.

11. The immediate reaction of the Government on the above report ( assuming that the report is correct ) and discussions in legislature would be to form committees to look into the matter. That should be desisted. Nothing much would come out of such action because in a sense the matter is not complicated and does not require babus to ponder over the same ( and visiting other countries with fact finding teams ). What has been done by other countries to check the menace in the past and how far they were successful in the past and what they propose to do in future could be ascertained. Such inputs would be valuable to deciding this country’s course of action.

12. Government should also study the reasons for the lukewarm response to earlier schemes of voluntary disclosure of such money and then consider bringing in new schemes which would be more successful ( It is the businessmen who could advice informally Government on what type of scheme and how much incentive would work! ).

13. Will there be loud calls in the legislatures for booking the offenders, when a large number of offenders are from the political class. And will the Government have the courage to take on that class..

14. Honest tax payers may start wondering whether they are increasingly becoming suckers of the system.

15. Will Government of India coming up with another amnesty scheme work, i.e., no punishment for bringing the money to India and paying tax as enunciated under the Scheme.

16. Or should Government go in for the kill, i.e., imposing massive fine, imprisonment, etc., on those who are indulging in such an activity and have been caught red handed.

17. Pros and cons of repeating such schemes:

Pros

· Whatever money flows to Government kitty under the scheme can be spent by Government on developmental works and for amelioration of the suffering and poverty of those down and under.

· If no such scheme is announced, the money will remain outside and Government of India can do nothing about it ( Laws in Switzerland enjoins banks there to maintain secrecy of the names and the amount of money deposited by them in the banks )

· It is better to be practical instead of being puritanical.

· It can be expected that those who bring money back to the country under scheme will invest, if not the full amount at least part of it, in projects and other commercial activities, which will give employment and improve GDP.

Cons:

· Any such scheme basically amounts to exonerating illegal actions.

· Such schemes demoralize honest tax payers from paying full their tax.

· If amnesty is given in one area, then there could be demands for similar amnesty in other areas.

· Any such scheme would encourage tax payers to hoard non tax paid money in banks outside the country in the hope of such schemes being repeated.

· There would be demands for starting similar schemes in respect of those who have hoarded within the country non tax paid money.

· And if the suggestion above is implemented then the same would encourage hoarding of unaccounted money both within and outside the country.

· Any such scheme goes against the jurisprudence of the country, i.e., punishing the guilty.

18. When the Indian Income tax rate at the highest level was over 90% more than two decades back and niggardly foreign exchange was given by Government for foreign travel, some excuse could be offered on why many Indians hoard their money in banks in other countries. But that is not the case any more. Our present Income Tax rates are more or less at the same level as that of many countries. There is also no problem in getting foreign exchange for travel. The obvious conclusion could be only one and that is that the above reasons quoted were lame excuses.


Summing up

1. Government has no other option but to go in for carrot and stick policy to deal with the matter.
2. Eradication of Black money can happen only when morality of citizens improve. That is not likely to happen. Hence Government has to prod on with what has been stated in point 1 above.
3. In some respects the urge to create Black money is a disease. Because it never stops in the case of individuals who have tasted blood. It is not created for living luxuriously. It is not mainly created so that the same can be passed on to progenies so that the latter would be well off. After some time, creation of such money becomes part of the psyche.


Post script:

1. Long back I had a discussion with a senior businessman on Black money. He enlightened me by saying ‘ It is the politicians and cine stars who have got black money. Businessmen do not have Black money. They have No.2 accounts. This is required to pay off politicians and babus who can put obstacles to running of our business.’

2. Let not the middle class people ( including professionals ) smugly point their accusing fingers at businessmen and politicians for creation of Black money. They in their own way are part of this syndrome. Avoidance of tax is a legitimate right but not evasion by finding loopholes not intended in the law. How many insist on receipt on purchases made. When the shopkeeper points out that receipt means a higher price, invariably one shrugs and thinks / says, ‘ what has government done for me. Forget the receipt.’
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