With the black money scheme turning into a big embarrassment for Prime Minister Narendra Modi and the Bharatiya Janata Party (BJP), the PM must tell FM Arun Jaitley to disclose the findings of the black money reports of NCAER, NIPFP and NIFM so that a strategy could be drawn to make a serious dent in the Indian shadow economy.
It will not at all be surprising to see a crackdown from the Income-Tax Department on the black money front, with the abject failure of the three-month compliance window to unearth unaccounted income and assets stashed abroad.
Only 638 declarations have been received under the compliance window which was opened on July 1, declaring undisclosed foreign assets amounting to just Rs 3,770 crore.
The department was advised against bringing in any amnesty or compliance scheme by several experts, but the government went ahead and brought the compliance window despite even officials in the Central Board of Direct Taxes (CBDT) not being confident about the results.
Initial indications suggest that mostly those already targetted by the CBDT have utilised the window to escape from bigger embarrassment and prosecution.
The department will now try to make-up for this failure to capitalise on the compliance window in a big way.
It must, however, refrain from a roving inquiry or a witch hunt and prepare a systematic and well-planned strategy to track and crack the black money bastions.
Black money is not a black box. It has got accumulated over a period of time in specific areas like, real estate, bullion business, and mining because of the lax regulatory regime.
Another reason for creation of black money has been a high incidence of tax and low level of enforcement in the tax domain — both direct and indirect taxes.
The government has detailed information about this in the form of three black money studies done by the National Institute of Public Finance and Policy (NIPFP), National Council of Applied Economic Research (NCAER) and National Institute of Financial Management (NIFM), but it is yet to act on these.
PM Narendra Modi must now tell FM Arun Jaitley to hold public discussion on these reports on black money to draw a comprehensive strategy.
According to the NIFM study (see full report here): “…the sectors where unaccounted income is found to be highest included real estate, mining, pan masala, gutka and tobacco industry, bullion and commodity markets, film industry, educational institutes and professionals. The other sectors, namely securities market and manufacturing also showed a high incidence of unaccounted income”.
To tackle black money menace in the real estate sector, it has recommended: “…constitution of a regulatory authority; rationalising circle rates with market rates; rationalization of stamp duty; automated and single-window clearance; including real estate in goods and service tax; eliminating ‘percentage of completion’ method; posting records online; capacity building and use of advanced tools like data mining generation of suspicious activity reports to spot tax fraud and money laundering”.
The report not only list outs different ways to estimate black money but has also given sector-specific and area-specific recommendations on the steps to be taken in dealing with black money.
The government must discuss these suggestions in detail and make this a part of the Budget-making exercise for FY17 that it has already started.
Check out the NIFM report on black money.