BJP, with a record win in the Lok Sabha elections 2014, stated ‘Ache Din Aane Wale Hain’. So have the ‘Ache Din’ finally arrived? One thing that could possibly hit the credibility of Modi government, is the issue of bringing back Black money- the moniker for income (Income on which tax is owed but has not been paid).
The law allows Indians to maintain bank accounts or hold property and other assets abroad, so long as it is disclosed in annual tax returns and is within the ambit of India’s foreign exchange regulation. If an Indian citizen holds money overseas on which tax was owed but not paid, he or she becomes liable to pay tax, plus interest and penalty. The penalty could be as high 300% of the tax that was avoided. The interest would be 15% per annum since the time the tax authorities believe that the tax was evaded. In addition, the tax evader could also be prosecuted for concealment of income, which could even result in a jail sentence. However under the Foreign Exchange Management Act., other Indian authorities may insist on bringing back the entire amount held in questionable foreign accounts, if holding that money violates Indian laws regulating the flow of foreign currency.
According to a 2013 report titled ‘Illicit Financial Flows from Developing Countries: 2002-2011’, India was ranked the fifth largest exporter of illicit money between 2002-2011, with a total of $343.04 billion, and in 2011 it was placed third when $84.93 billion was sent abroad. In February 2012, the director of the CBI said that Indians have $500 billion of illegal funds in foreign tax havens, more than any other country. As on December 2013 according to Swiss National Bank’s latest data, the total money held by Indians in Swiss banks stood at over Rs.14,000 crore, increased by approximately 42% from a year ago.
Few developments that took place after the National Democratic Alliance (NDA) government took charge at the Centre in May this year are as follows:
- PM Modi decided in the maiden meeting of his cabinet to form a high-profile SIT, The special investigation team, headed by former SC judge MB Shah, to unearth illicit money.
- The Centre on October 17 told the SC that it could notdisclose the names of those who have deposited money in banks abroad as it this would jeopardise tax agreements with nations providing those names to India.
- Arun Jaitley stated that Switzerland had agreed to share informationrelated to HSBC and Liechestein lists of account holders, provided there is independent evidence collected by Indian authorities.
- On Oct 27 the Modi governmentnamed seven persons and a company facing prosecution for keeping illegal wealth in foreign banks. The much-awaited list did not include names of any politician. Those named in a government affidavit were Pradip Burman of the Dabur group, Rajkot-based bullion trader Pankaj Chimanlal Lodhya and directors of Goa-based mining company Timblo Private Limited — Radha Satish Timblo, Chetan S Timblo, Rohan S Timblo, Anna C Timblo and Mallika R Timblo. Timblo Private Limited, a firm identified by Association for Democratic Reforms as a donor to both the BJP and the Congress, was also named.
- The government was directed by the apex court to submit to it thenames of all foreign bank account holders by Oct 29.
- On Oct 29 the government submitted a list of 627 Indiansholding accounts in HSBC Bank, Geneva, to the court, which directed SIT to examine them and take appropriate action by March next year. The sealed envelope three documents —the government’s correspondence with the French government, the list of names and a status report.
- A special bench of the apex court refused to open the envelopehanding over by the Centre and said that it would be done by the SIT chairman and vice-chairman. The next hearing is scheduled for December 3 and the SIT is supposed to submit a status report by November 30 after ascertaining who had black money accounts abroad.
It is believed that ‘hidden wealth,’ if brought back to the country, could significantly help with the upliftment of the poor and development of India. The government will reportedly get Rs 750 crores in taxes.
One of the recommendations, given by leading economists around the country, to curb the circulation of black money is that currency notes of highest denomination printed by government should remain in the market only for 2 years. After a 2-year period is expired there should be a one year grace period during which these currency notes should be submitted and accepted only in bank accounts and after that those notes will cease to be accepted under the instructions of The Reserve Bank of India. This would help in turning most of the unaccountable money into accountable and taxable money.
Also, measures like Lower taxes, simpler compliance, eased inflation, improve employment generation, lower corruption, elimination of bureaucracy, discretionary regulations and continuous economic liberalisation could further remove underground economy and black money.
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