T N Pandey: Black money: where is the strategy?

The problem cannot be solved by ad hoc approaches

Persistent reports in newspapers about the government's resolve to implement the commitment in the National Common Minimum Programme (NCMP) for a special scheme to unearth black money and assets show the government's desperation, considering the nearness of the Budget.

The constitution of an in-house committee by the Central Board of Direct Taxes (CBDT), headed by a director general (investment), to submit a scheme in four weeks' time is like administering pain-killers to cure cancer.

It is a pity that whenever the seriousness of this problem is raised, the government merely gears around launching voluntary disclosure schemes and issuing bonds "" measures that bring in revenue not commensurate with the amount of black money in circulation. There are no strategies to stop the generation and accumulation of black money.

Finance Minister P Chidambaram wants to bring changes in the fiscal area/ tax laws, but lacks the patience to provide the requisite infrastructure and give adequate time for results to show.

When he was the finance minister in 1996-97, he constituted an expert group to simplify and draft a new tax code in five months' time. The group did give a report in seven months and a draft of the new Income Tax Bill, too, but these were so imperfect that nothing much could be done to implement them. These reports are now a part of the archives of the finance ministry.

Now the finance minister wants to tackle the problem of black money by constituting a committee of the tax department itself, which has to study the various aspects of the problem and give a report in four weeks. No worthwhile study can be done in such short a time.

Further, an in-house study group cannot have the varied visions needed to tackle a problem that now has international ramifications. What is needed is a well-planned and systematic study by a body that has representatives from various sectors of economy having adequate time and infrastructure. This group needs to concentrate and study the various aspects of the problem and suggest appropriate solutions. The areas to be looked into are:

Identification of the various important sectors of the economy that generate black money;

Causes and circumstances that lead to the generation of such money and wealth (some studies in this regard have been made in the past but most of the causes identified then have lost their relevance with time);

What are the ways and means that are currently followed to convert black money into white?

How can the existing vast accumulation of unaccounted income and wealth be best tapped without demoralising honest taxpayers?

Suggestions on effective and expeditious punishment for tax evaders;

How honest compliance with tax laws can be ensured.

The body should be headed by a sitting or retired judge of the Supreme Court, as was done when Chief Justice K N Wanchoo was appointed in 1959 as the chairman of a committee of experts to "examine and suggest legal and administrative measures for countering and avoidance of direct taxes". This committee made valuable suggestions, the implementation of which helped considerably in checking tax evasion.

It needs to be seen how far measures taken in the past to counter black money have succeeded. One of the most common ways of tapping black money has been amnesty schemes. There have been 12 such schemes between 1946 and 1997.

These schemes generated meagre revenues. The VDIS scheme in 1997 brought in only Rs 10,050 crore as revenues on disclosure of an income of Rs 33,000 crore. It helped convert huge sums of money into white without the payment of any tax.

Further, these schemes suffered from various weaknesses, namely:

Although these schemes took care of the "stock" of black money, they did nothing to check its "flow";

These schemes have given incentives to evade and then get away by paying small amounts by way of tax without any penalty or persecution;

The expert committees have all decried and spoken against such schemes, yet these have been resorted to frequently.

Demonetisation of high-value notes has served no purpose. In 1978, the notes not tendered for conversion were worth Rs 20 crore, out of a total circulation of Rs 178 crore. The Special Bearer Bonds of 1981, too, did not prove to be a success.

Further, these instruments were not for tapping black money but were instruments of borrowing. They created avenues for investment of black money since they provided anonymity/ immunity to the purchasers.

The three measures mentioned above are again been talked about for checking black money. It is worth examining whether these failed measures should be tried again. Besides, new approaches to solve the problem have to be thought of too.

The Wanchoo Committee, in its report in 1971, described black money as a "cancerous growth in the country's economy, which if not checked in time, will surely lead to its ruination".

The situation has only worsened. The problem needs to be handled with utmost seriousness and urgency, and not casually, as is being done to show superficial compliance to the NCMP mandate.