Demonetisation may wipe out the present stock of black money held in cash from the economy but cannot eliminate the ill-gotten wealth converted into assets such as gold and real estate, Assocham said today. However, the industry body has suggested measures like lowering stamp duty on property transactions to tackle the menace.
“Invalidating existing high-denomination notes addresses the stock of black money but does little to address future flows. Eliminating such flows will require further reforms like lowering stamp duty on property transactions, electronic registration of real estate etc,” the Assocham study said.
Moreover, it said, indications that most of the scrapped currency has returned to the banking system through right or wrong means do suggest that demonetisation may not even fully wipe out the existing stock of ill-gotten cash.
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“To that extent, even our study may turn out to be ambitious if the tax authorities are not able to trace the money laundered through different accounts. Given the resource constraints with the tax authorities, carrying out such an exercise for identification of laundered money may be a herculean task,” Assocham Secretary General DS Rawat said.
The study pointed out that high denomination currency withdrawal is not without some inherent problems.
“It is very difficult to separate black money from white money because distinction is not once-and-for-all. White money used to purchase something becomes black if the shopkeeper does not pay sales tax,” the study noted, adding that much of conspicuous consumption is paid for in unaccounted money, which, in the hand of the recipients can again become perfectly legal income.
Ultimately, the problem of undisclosed incomes and wealth has to be tackled at the source, Assocham highlighted.
“Government must reduce the opportunity and incentives for unaccounted transactions by narrowing the gap between the market value and the one fixed by the government agencies for different levies like stamp duty etc,” Rawat said.
Further, in order to check the menace of black money, the chamber suggested measures, which include reducing discretionary powers of officers by framing rules and laws clearly and not leaving them to individuals’ interpretation.
“Ironically, several of our laws are badly drafted and framed, leaving scope for official discretion. The problem in a way starts here,” the chamber said.
A strong political will would be required to deal with this issue and bureaucrats drafting the proposed legislations should be clearly instructed not to leave any grey areas, it added.