Unaccounted wealth stashed abroad by Indians is estimated to be in the range of $216.48 billion to $490 billion between 1980 and 2010, the Standing Committee on Finance said in a report on black money of India tabled in 17th Lok Sabha Budget session on Monday.
The 73rd such report was prepared on the basis of a preliminary report previously presented to former Lok Sabha speaker Sumitra Mahajan on March 28, a copy of which has been uploaded on the Lok Sabha website on the directions of the committee.
It was, in turn, derived from three separate studies conducted by reputed bodies such as National Institute of Public Finance and Policy, the National Council of Applied Economic Research, and the National Institute of Financial Management.
The earlier report titled ‘Status of Unaccounted Income/Wealth Both Inside and Outside the Country–A Critical Analysis (a preliminary report)’ was introduced in both Houses of Parliament on Monday.
Although it cites contradictory sources, is far from conclusive, and provides no specifics on the volume of black money inside India or abroad, the report points to gaping flaws in the current Indian tax landscape.
Need of the hour
Congress leader Veerappa Moily, chairman of the standing committee that presented the report, told the Economic Times that direct tax reforms are the need of the hour. Amendments to the Income Tax Act have not been comprehensive, he said, in the sense that changes have not been made in tandem with indirect tax reform led by the introduction of Goods and Services Tax (GST). “Instead of making piecemeal amendment to the I-T Act, we require a simplified code on direct taxes,” Moily told reporters.
Meanwhile, the report is poised to become a bone of political contention. Moily has already accused the government and said, “In the last five years, the NDA government gave only slogans, taking no solid action against black money.”
The Centre is expected to respond and challenge certain sections of this black money report soon, especially defend the measures it has taken to control and arrest the flow of black money with demonetisation.
The Reserve Bank of India and several global publications have already suggested that the note ban exercise has been a failure in terms of curbing laundered money, causing more problems than it has solved. RBI reported last year that more than 99% of the invalidated currency was back in the system.
The UPA government in 2011 had commissioned the original studies constituting the basis of this report to generate an estimate on the quantum of black money abroad and in the country.
But the standing committee “found a wide variation” in their evaluation. According to NDTV, the methodologies followed to curb black money are inconsistent, and the results are contrasting. “All estimates depend on the underlying assumptions made and the sophistication of adjustments incorporated. Among the estimates made so far, there is no uniformity or consensus about the best methodology or approach to be used for this purpose,” the tabled report states.
“The variations in estimate are more than 100% in some cases,” Moily said, confirming that the actual number could be anywhere in the range of 7-120% of the GDP.
Why this matters
With increasing number of loan defaulters, the country’s banking and shadow banking sectors are facing a massive crisis.
As tax havens Switzerland, Lithuania, Hong Kong, and Luxembourg come under exceeding scrutiny, they are taking the lead to share information with individual governments regarding irregularities or suspicious activity to and from overseas bank accounts.
Since March, which is when Switzerland clamped down on the secrecy walls of its banks to re-establish its global financial centre position, the country’s Federal Tax Administration sent 25 notices to Indian clients of its banks, giving them a chance to administrative assistance and appeal before passing on their information to the Indian government.
On May 21 alone, the Swiss authorities sent notices to 11 Indian individuals, reflecting the recent surge in India-related cases. The Swiss government’s gazette notifications redacted the full names of bank clients and gave initials, nationality, and the dates of birth. But among the names publicly known, several feature in global black money cases, such as the Panama Papers and the leaked HSBC lists.
The Indian government has made several attempts at global forums, like G20 and FATF, to apprehend fugitive economic offenders, but it has never approached direct tax reform as a potential solution to the problem of domestic tax evasion.
According to India Today, a secret study commissioned by the finance ministry concluded in 2014 that between 90 and 97% of unaccounted wealth, or black money, was lying within India and not outside.
Prarthana Mitra is a Staff Writer at Qrius
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