In the war against black money, the system has to change

Tuesday, 3 June 2014 - 6:00am IST Updated: Monday, 2 June 2014 - 8:01pm IST | Place: Mumbai | Agency: DNA

A quick decision to form an SIT to tackle black money at home and abroad shows an unmatched resolve of the Modi government to bring transparency into public life. The public impression is that the UPA was dragging its feet for reasons best known to it. It was specifically accused of trying to protect those who did not deserve even the slightest clemency. The foreign banks’ — holding the untaxed booty — reluctance to divulge information of account holders, was touted by PM Singh’s government as one major reason why it could not move forward. But now there is hope. The SIT, headed by a former apex court judge, who is assisted by another judge of the same rank, has the right composition to deliver results in quick time.

We had managed to get some information from Germany on monies held by a few Indians in a Liechtenstein bank. This was only a tip of the iceberg. Not long ago UK could get into a pact with Swiss banks even though it involved giving an assurance of confidentiality of individual names until and unless the latter were taken to court. Why can’t we do likewise? Stooping to conquer is fair in this regard.

We are obsessed with illegal accumulations in Switzerland. There are many other locations. Our financial intelligence system needs to be toned up immediately. Like fighting terrorism, we need the assistance of many other countries, particularly the US and UK. Any reservations here on grounds of security will be ill-founded. The SIT has its task cut out.

Let us begin with by introducing what is known in the US as the Foreign Bank and Financial Accounts (FBAR) declaration which is obligatory for every ‘US person’ (citizen/resident/entities, including but not limited to corporations, partnerships, limited liability companies created or organised in the US). We need to conceive of a similar annual declaration from all those who are statutorily liable to file IT returns. This would disclose any foreign holdings, including bank accounts. An executive order to this effect is very much warranted well before the next IT return becomes due. Any false declaration would invite severe penalties, including criminal prosecution.

On the domestic front, the focus should be on real estate transactions. The fact that many office buildings and high-end apartments in major cities remain unoccupied even after completion of purchase transactions is a pointer to what is now the most popular parking destination for the dishonest. This unholy system that feeds the greed of political bigwigs is the biggest obstacle to the task of ferreting out untaxed income.

The abolition of Estate Duty in the mid ’80s had promoted the bequeathing of unaccounted for money and property to heirs with no legal liability to the latter. Tweaking of the IT laws to pass on financial liability will be a deterrent. Demonetisation of currency notes of Rs500 and above coupled with insistence on plastic money or mobile phone transfers for all transactions above Rs1,000 will greatly reduce the volume of unaccounted cash. There has lately been a commendable expansion of the banking system to rural areas. Villagers must be told  that their money is safer in banks than in the form of cash at home. The common man has got used to ATMs as much as he is to mobile phones. More ATMs in villages will greatly aid the fight against unaccounted money.

All the proposed moves will be of no avail, however, if we continue to have a dishonest enforcement machinery. The number of senior IT officials found guilty of corruption is of great discomfort. The local police and CBI are also prone to dishonesty. It is the IT administration that is most directly involved in the corrupt processes of tax collection. All reforms should therefore begin at this point. They need not, however, necessarily stop there.

The writer is a former CBI Director


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