BofA-ML estimates capital flight of $200 b, or Rs 12 lakh crore, in the last decade; bankers say very little may come back as evaders are smart enough not to leave the dough on the table
Will the government succeed in bringing back huge amounts of black money stashed away by Indians in Swiss and other bank accounts overseas?
Very unlikely, say economists and bankers dna spoke to. Banks entertaining high net worth clients are also prudent enough at the time of opening such accounts to envisage any political uprising that could crop up later.
Bankers say till then, it's only juggling with numbers.
“The fact these account holders have generated tax-free money outsmarting local authorities and their governments is a testimony that they would not leave enough money on the table,” said a senior banker at a foreign-owned bank.
“Such monies usually get diverted to trusts or get institutionalised,” he said.
Bank of America-Merrill Lynch on Wednesday estimated a capital flight of $200 billion in a research report and said even if half the amount was unearthed; it translates into $30-35 billion in tax revenues for the government, or an eight-month import cover, by March 2016.
The report adds that rupee would hold Rs 58-62 to the greenback if the US currency remains static at current levels of 0.79 euro.
But the fact remains whether the list of 627 names submitted to the Supreme Court by the government on Wednesday – which in turn handed over the sealed envelope to the Special Investigation Team that will submit a status report by November 30 – will fetch the country at least a tenth of the conservatively estimated $100 billion, ask critics.
High taxation has been the root cause of black money that continues to be generated everyday through over-invoicing of imports and under-invoicing of exports. “Even within the country, black money gets generated,” said a practicing doctor in south Mumbai. “I carry some, the hawkers carry more,” he said.
Amnesty scheme appears to be the only solution to woo the money back into the system, said a tax consultant. But the earlier government has already been warned by the apex court that amnesty schemes at the cost of honest tax payers were unethical.
Related Read: Amnesty scheme could get back black money
“Why should one have such a window (amnesty scheme) when the honest tax-payer declares every rupee that he earns to the government? But then, the government should explain to the Supreme Court that it is impossible to unearth such monies otherwise,” said Keki Mistry, vice chairman and CEO at HDFC.
The main cause for black money generation has been the high tax structure, but “reducing taxes or making the rupee full float cannot occur unless the economy gets stronger,” said a senior executive at a foreign fund said.
Most financial experts say the generation of black money is minimal in industrialised countries like the US, the UK and most of Europe despite the tax-rates being higher than India.
“We have a lower tax rate of 34% when compared with 45% in the US. But then the US government looks after the retired citizens through social security schemes that India does not have,” said Mistry.
According to Mistry, the way forward for the government is to offer an amnesty scheme with a higher tax rate of say 40%. Once the money comes into the system, the balance 60% that needs to be paid back should be retained with the government through issuance of a five-year nominal interest- bearing sovereign bonds to the individuals. The government, in the meantime could utilise the funds for development needs of the country.
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