How to curb the problem of black money this Budget Session

Black money has been the bone of contention ever since Anna Hazare started his anti-corruption campaign. The opposition has pinned down the UPA several times over this issue, challenging them to bring back the money stashed away abroad.

Now, with just a few days before Budget 2012 is presented in Parliament, the big question is whether the government will go ahead with its proposal of granting amnesty blanket (voluntary disclosure type of scheme to whiten black money) to those who bring back/help in bringing back black money in foreign banks.

Industry experts are in consensus against the government proposal and none wants the proposal to be picked up during this budget session.

Vaidyanathan,Professor of Finance and Control at the Indian Institute of Management in Bangalore, in an interview with CNBC-TV18 points out that the current government has lost all creditability, so any type of amnesty being introduced will be looked at with cynicism. “Amnesty implies that we condone what has taken place. .. Even without amnesty the money is coming in through several routes, " he said.

The holders of black money have predictably started a concerted campaign for an opportunity to whiten it before the annual budget is passed. The government has already announced that the black money could be whitened by investing in treasury bonds. But unsatisfied block money holders are demanding greater flexibility of choice of instruments to invest their illegal funds.

Moreover, whitening does not generate much revenue as only a small amount of black money is whitened.

GC Srivastava, Former Joint Secretary, Foreign Tax and Tax Research at the Central Board of Direct Tax feels an amnesty erodes the efficacy of the system and the enforcement machinery. “You are not going to gain anything out of it except garnering some revenues and that too it is highly doubtful but as a long-term measure, one can never advocate for such scheme,” he told CNBC-TV18.

Raymond Baker, the Director of Global Financial Integrity, says that tax evasions should be made a criminal offence for Indian officials. The purpose of this is not to fill up the courts with tax evasion cases, but to change the normative behavior that exists among many people.

“We must arm-twist countries like Switzerland and Cayman Island to have geographical disclosure of the depositors, not only of shares and bonds but the pearls, the diamonds, the gold and other type of jewellery which is lying from India in their lockers,” he said.

On Friday India became the 13th country and the first non-OECD nation to ratify the ‘Multilateral Convention on Mutual Administrative Assistance in Tax Matters’, which seeks to promote transparency and exchange of tax-related information.

The convention explicitly provides for automatic and spontaneous exchange of information and will permit tax officials to enter into the territory of the other country to examine individuals and records.

But Vaidyanathan feels that rather than concentrating on international mechanisms for returning assets deposited abroad, India should first step up its efforts in curtailing outflows bymaking the enforcement machinery stricter. The only way to stop money from leaving the country is to create a mechanism where it becomes more and more difficult for the people to really keep these transactions under the carpet, argued Vaidyanathan.

Baker on the other hand, argues, that since India is in dire needs for money, it should take the lead in G20 to push for international standards, rather than generating revenue by granting blanket amnesty to tax evaders.Steps taken by Prime Minister Manmohan Singh for an automatic exchanges of tax information and curtailing activities of tax heavens is a move in the right direction, he said.