In the recent times in India, the issue of black money and corruption has come into being with participation of our civil society and parliament institutions. The term ‘black money’ can just be simply defined as aggregate of incomes which are taxable but not reported to authorities. A reputed newspaper says that unofficial estimates indicate that Indians had over US$1456 billion in black money stored in Swiss banks (approximately USD 1.4 trillion). This is an astounding amount that jolted the entire nation. The issue of Black money became a political flashpoint between two main political parties in 2014 general election in India. There were several assurances that had been made by the political parties and bringing back black money to our treasury was one of those assurances. Apart from being a political propaganda, black money is also is a cause of major concern for the Indian economy as it results in huge losses in tax revenues for the government. India is amongst the leading countries or developing nations in the world with total illicit financial flows in its economy.
With such inordinate assurances given by the new government to bring back the black money to India, it had to prove its mantle. The first thing the government did was setting up a Special Investigation Team under two former Supreme Court judges. Despite all efforts, there is no sign of bringing back the black money stashed abroad so far.
The principal arms of the government on the detecting the generation of black money and curbing it namely the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) have also failed to serve their core purpose. The existing legal and administrative framework to deal with the issue of black money has proved to be largely ineffective. Polices that have been established to curb accrual of black money have not been enforced by the agencies. In addition, systems and processes in place have been circumvented, rendering them unproductive or even obsolete in most scenarios. Further, a large part of the Indian economy is unorganized and involves heavy use of cash transactions, which do not leave audit trails.
The two main reasons for the government failing to track, prevent and report black money are lack of adequate mechanism and inefficient legal framework, respectively. The other areas where the government has serious lacunae is lack of training to the staff on the subject matter, inefficiency in the functioning of the administrative agencies, dearth of manpower, quality of personnel and limited reach of the agencies.
Besides, the government realising the above inherit issues, they took the route of legislation by passing the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The worth of the new, stringent law against Indians stashing away unaccounted money in foreign destinations cannot be judged by the quantum of assets disclosed within the compliance window that ended on September 30 2015. Assets worth Rs. 4,147 crore, yielding tax to the tune of Rs.2,488 crore, were disclosed within the deadline. The true test of the efficiency of the enactment will be two-fold: in its ability to deter any further siphoning of money to offshore destinations and in the force with which investigation and prosecution are pursued against those who still hold assets abroad. After the compliance window, any undisclosed foreign income that is detected will henceforth attract tax at the rate of 30 per cent, a penalty of 90 per cent and a 10-year prison term. It is expected that such a stringent law and penal provisions will have some deterrence value.
Despite all the legal recourse and legislative reforms, there is no sign of black money returning to our country anytime soon. With some reports claiming that bulk of the black money is still within our country and we, having 75% of our GDP quantified by parallel economy, this issue is not likely to be eradicated from our country. The real challenge before the regulatory regime is to promotes tax compliance and income disclosure. Preventing black money accumulation may be more important than even unearthing it. The government also seems to be watering the issue down by proclaiming the black money a complex issue and it seems like the government is yet to make its best effort in the issue.