The average amount of black income per declaration in the IDS is about one crore rupees. This is low, given that the amount floating around is far higher. The big black income earners did not respond to the initiative
What is black moneyIJ It is money obtained through illegal activity. Black money proceeds are usually received in cash from underground economic activity and, as such, is not taxed. Recipients of black money must spend it only in the underground economy, or attempt to give it the appearance of legitimacy through money laundering.
Possible sources of black money include drug-trafficking, weapons-trading, terrorism, prostitution, selling counterfeit or stolen goods and selling pirated versions of copyrighted items such as software and musical recordings.
The Income Declaration Scheme (IDS), announced by the Modi Government to bring undeclared income and assets into the tax net, closed on September 30, after remaining open since June 1. The Finance Ministry announced that 64,275 people have come forward to declare Rs65,250 crore of black money. This is the largest amount declared as black money in the history of Indian taxation.
The average amount of black income per declaration is about one crore rupees. This is indeed low when there is daily news about people being caught with hundreds of crores of rupees of black incomes. It is likely that either the big earners of black incomes have not come forward or declared a negligible part of their black money.
The last disclosure scheme was announced in 1997 — the Voluntary Disclosure of Income Scheme. Under it, Rs33,000 crore was declared and tax of about Rs10,000 crore was collected. The 2016 scheme is also a ‘voluntary’ programme, even though it is not called that. The 1997 scheme was called an amnesty scheme because of the low tax that had to be paid. But this time, it is not referred to as an amnesty because a higher rate of tax is being charged.
The Government had also given an undertaking to the Supreme Court in 1997 that it would not initiate any more amnesty schemes. The reason was that an amnesty scheme is unfair to the honest tax-payer while those evading taxation get a concession. But the IDS is also an amnesty scheme. The penalty charged is less than what was being charged for tax evasion before the scheme was launched. Before June 2016, if a person’s income was found to be black, the penalty was 100 per cent to 300 per cent of the tax evaded.
Since the tax rate is 30 per cent, the penalty worked out to 30 per cent to 90 per cent of the income evaded; under the IDS, the penalty is 15 per cent of the income. In this sense, the IDS runs counter to the Government’s commitment to the Supreme Court in 1997.
The number of declarations in 1997 was over four lakh; now, surprisingly, it is a sixth of this number. The number of businesses, professionals, corrupt officials and politicians has risen over the time. The Government also has announced that it would not reveal any of the data collected through the scheme to any agency; not even the Comptroller and Auditor-General.
Gambling, production of illicit liquor, smuggling, trafficking illegal drugs, lending at exorbitant interest charges, money lending without proper license etc,produce black money When some individuals wish to undertake such illegal activities, these will apparently go unreported and incomes earned would be totally black.
Political funding in our country to individual politicians and political parties is generally by black money. These days, elections are a number of times costlier than the legal limits laid. So, necessarily, the contributors have to pay in cash. In fact, I have seen queues of people waiting to meet candidates, and give cash, so that they can encash the favour at later. Hardly any individual or an organisation, with exceptions, gives cheques to present or future rulers.
There are numerous ways in which black money is converted into white. The Supreme Court had said, “The Attorney General will tell us what the Centre has done on the recommendations of the SIT.” The advocate dealing with the subject placed the recommendations of special Investigation Team on black money before the Supreme Court, as under:
1. It has advocated action under anti-money laundering law for trade-based money laundering, putting a cap on huge cash transactions, as these mostly take place in illegal activities like drug trade and betting deals.
2. It has also said there is need to check the generation of black money in the education sector and through donations to religious institutions and charities. This is likely to be the most contentious suggestion, which has the potential to put the Government in a spot. The reasonIJ The involvement of religion.
3. It wants additional courts to established to decide the pending cases under the Income Tax Act, establishment of a Central KYC Registry and empowering the Directorate of Revenue Intelligence under the Special Economic Zone Act.
4. There is a a specific recommendation to take steps to check generation of black money through cricket betting. This too is likely to be a political hot potato, as many senior Ministers and political leaders are directly involved .
5. It dwelt on the issue of money laundering through the misuse of exemption from long-term capital gains tax. It recommended that capital markets regulator Securities and Exchange Board of India (Sebi) needs to have an effective monitoring mechanism. It said , “We understand that Sebi has a strong IT infrastructure which can generate red flags for such instances. Such red flags could be built upon trading volumes, entities which contribute to trading volume, financial background of firms through their annual returns and any other indicators Sebi may develop. We believe that with effective and timely monitoring by Sebi, a significant number of such instances can be checked in time" .
6. It wants Sebi to share any such information with the Central Board of Direct Taxes and the Financial Intelligence Unit (FIU). It also said the Enforcement Directorate should then be informed to take action under Prevention of Money laundering Act for the predicate offences.
According to a media report, the SIT has said the value of P-Note investments as of end February 2015 was at Rs2.72 lakh crore. The top five countries from where
P-Notes investments be beneficial are Cayman Islands, the US, the UK, Mauritius and Bermuda. According to the report, SIT noted that at Rs85,000 crore, Cayman Islands accounts for the biggest portion of P-Notes investment. It wondered a small country with just 55,000 population managed to invest such a huge amount in Indian shares.
Just because the Government will net Rs29,362 crore in the latest IDS, it should not rest on its laurels. The turn of the carrot is over. Now it should be the stick within the ambit of law, all the way.
(The writer is former Director, Central Bureau of Investigation)