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The Big Picture – Black money: What is the real issue?

Summary:

  • The black money debate in this country has been on for some years now with it getting politicized lately.
  • The politicization of the issue has completely overshadowed the complexity of the issue.
  • Meanwhile the intervention of the Supreme Court following the petitions since 2009 and its order in 2011 that all names of the Indian account holders in foreign banks be disclosed has created a new dimension to the debate.
  • The SC had directed the government to release all the names of account holders.
  • It had also refused to entertain the government’s plea to modify its 2011 order. The government had claimed that it could release the names in tune with the international standards.
  • The government is said to be in a tough place because it has to comply SC’s order. The SC’s order is binding. The SC will decide its own course of action including giving directions to SIT on how to deal with it.
  • The government may then at a later date have to satisfy other countries with which it has DTA agreements and make them realise that it has not breached the agreement.
  • DTA means double taxation avoidance agreement. It is about the declared income and not about the undeclared income or black money.
  • The secrecy is not absolute according to the agreement. It means that the data can be disclosed in public court proceedings and judicial decisions.
  • This information can also be given to the tax authorities.
  • Most DTAAs allow for exchange agreements.
  • Switzerland has very strong secrecy requirements on its banks.
  • Tax evasion is not a cognizable offence in Switzerland.
  • Any Indian citizen is allowed to maintain a bank account outside India.
  • Under FEMA a criminal offence became a civil contravention. A violation of FERA was a criminal offence and FEMA a civil offence.
  • Parking funds abroad without concealing in income does not contravene the IT act.
  • The destination does not matter in the IT act. It matters under FEMA.
  • Every concealment does not necessarily lead to prosecution. IT department has got certain discretionary powers in matters related to prosecution. This tends to pick up the names which might be politically motivated.
  • If an account was opened when a person was a Non Resident Indian then he is entitled to maintain the account for the rest of his life.
  • If the account was opened with the permission from RBI then it is not violation of law.
  • Demanding the names in a sealed cover ensures that there is no further manipulation.
  • According to a report there is more black money in India than abroad.
  • Black economy roughly accounts for more than half of the GDP. Of which 10% goes abroad and a part of it comes back through round tripping. And some of it is consumed. Hence the money parked in foreign banks is very less.
  • The nature of the generation of black money has changed in the last 20 years.
  • Our tax base is very narrow. Only 1% Indians pay income tax. Around 2% Indians file nil tax returns.
  • SC has appointed SIT.
  • Need of the hour is to relook at the policies and regulations.
  • There seems to be a nexus between business, politics and crime.