The fact that the government has got just 638 declarations with Rs 3,770 crore of foreign assets under the black money amnesty scheme that ended Wednesday night should be a wake-up call for both the government as well as senior Bharatiya Janata Party (BJP) leaders who had made this a big campaign issue during the run-up to the elections as well as after coming to power. While LK Advani used the Global Financial Integrity (GFI) data to talk of how Indians had $462 bn stashed overseas, yoga guru Baba Ramdev hiked this to an astronomical $8.8 trillion – even if you keep in mind the most liberal estimate of the black economy in India, given the vastly higher returns in India, it never made sense that such large amounts would be kept overseas; indeed, one of the criticisms of participatory notes (PNs) was that they allowed overseas Indian funds to come back home. Indeed, some months ago, as part of the black money mission, the tax department put out a press release on how searches of 414 corporate groups had led to seizures of Rs 582 crore of assets and Rs 6,679 crore of undisclosed incomes; another 1,174 surveys, the release added, led to detecting another Rs 4,673 crore of income – given India’s tax collections this year are projected at Rs 14.5 lakh crore, this is not even peanuts.
Even the GFI numbers, ironically, made this clear once you put them in perspective. According to GFI, the money being siphoned off overseas fell from $45 billion in 2008 to $29 billion the next year, jumped to $68 billion in 2010 and $85 billion in 2011 – those are large numbers and this is income that needs to be taxed, but it added to just 5% of GDP in that year. This is where keeping perspective is important. India’s tax-to-GDP ratio has been stagnating, even falling, from 17.6% in FY08 it fell to 15.1% in FY10 and then recovered to 16.8% in FY14, and this is after introducing revolutionary changes like VAT and increasing service taxes to almost all services today. Just raising the tax-to-GDP ratio by one percentage point will get another Rs 1.4 lakh crore or roughly 10% more than the projected taxes for the year.
Which is why, the government will do well to focus more on ways to catch the current generation of black money and not obsess about the stock. A simple example makes this clear. Assume India had Rs 100 of GDP 5 years ago and 30% of this was black – so the stock is Rs 30. If the proportion of the black economy stays the same, this means Rs 60 of fresh black money is being generated today, given the economy is growing by around 15% a year. Focussing on this means getting GST going since, once successful, it will track most transactions in the economy. Income tax data, similarly, suggests large evasion by those in the middle-income group of Rs 10-20 lakh. Indeed, the Tax Administrative Reforms Commission (TARC) had pointed out that the taxman does not efficiently use the reams of data it gets on spending from Annual Information Returns (AIR) – this includes spending on property, on jewellery, on cars and so on. Data put out by the taxman a few years ago pointed out that India had just 14.6 lakh persons declaring a taxable income of more than Rs 10 lakh while 16 lakh persons made credit card payments of more than Rs 2 lakh in FY13 and 52.4 lakh persons spent more than Rs 2 lakh buying mutual funds in FY13. Which is why TARC estimated that India has to have at least 6 crore taxpayers today as compared to the 3.5 crore we actually do. Widening the tax-base and the 360-degree profiling the direct taxes chief has talked about have to be top priority, not chasing old ghosts, even if that was an election promise.