Black money- An explainer
A hue and cry over the black money issue and the statements by the Finance Minister that the names cannot be revealed has become a debating subject in several circles. According to Professor R Vaidyanathan, of the Indian Institute of Management Bangalore who has written extensively on the subject and even prepared a detailed paper on the same, the approach in a lot of ways is entirely wrong.
In this interview with Professor Vaidyanathan explains the entire issue and also says the money pertaining to income tax avoidance stashed away abroad amounts to just 20 to 25 per cent where as the rest is all pertaining to corruption, drug and arms smuggling. He also says that Prime Minister Narendra Modi will watch what his ministers do and if he finds that they are not taking any concrete action he will step in himself and sought it out.
Revealing the names-
The problem is that the government wants to treat all the money stashed away abroad as black due to income tax being avoided. The issue here is that the money which has been stashed away abroad in order to avoid income tax amounts to just 20 to 25 per cent. The rest is all ill gotten wealth through corruption in defence deals, arms smuggling, drug peddling among other crimes. Successive governments are quoting double taxation treaties for not revealing the names. This treaty would cover only that money that is parked abroad to avoid income tax. Even if there was no such treaty in place, it still would have been difficult to name persons who had stashed their money abroad to avoid income tax. Once such money which I refer to as vegetarian money is brought back, a fine is levied by the Income Tax Department and the matter is treated as closed. Once the IT department recovers this vegetarian money they do not even have to reveal the names to the CBI or any other agency.
What about non-vegetarian money?
Now this is the primary issue. I chose to call the money stashed away abroad which has been obtained through illegal means such as corruption and smuggling as non-vegetarian money. The double taxation treaty does not say anywhere that in the case of such money the names cannot be revealed. Here is where the difference lies. The government is looking to treat everything as income tax avoided money and hence says that the names cant be revealed under the DTT. A bifurcation ought to be made and while they can chose to conceal the names of those persons who have parked vegetarian money, the names of those persons who have stashed away non-veg money hasto be revealed as no treaty is binding on this issue.
Your suggestions:
I had suggested to the government of India that all elected representatives must give an affidavit that they have no money abroad and if there is anything found government can take it over. Judges of High Court and the Supreme court should also be included in this list. Businessmen, sports men and bollywood stars should be giving an affidavit. Both houses of Parliament can have a joint sitting and pass a law saying any money stashed abroad belongs to government of India. The government must claim ownership of the money. Once this money is brought back a special purpose vehicle needs to be started to invest such money in infrastructure development. If the money being brought back is vegetarian then the owner of such money can be paid an interest on the same and in the case of non-vegetarian money, the owner needs to be jailed.
What about unclaimed money?
Not many come forward to claim the money when the government is trying to bring it back. Only those who feel that they could pay the fine for their vegetarian money will stake a claim. However 75 per cent is non-vegetarian money and these persons will never come forward to claim it. These persons do not even nominate anyone for the money and once they die it goes to the banks in which it is parked. In such an event, the bank tends to keep that money and the Indian government could do well to arm twist them and obtain such money too.
What is the Prime Minister doing?
Trust me he will not let it go. He will wait and watch and if he finds this drama is continuing and nothing happens, then he will take dramatic steps and bring the money back. After all it was a promise he made to the people of India and he will live up to it for sure.
‘Govt can get back black money in One year’
R Vaidyanathan
There has been an uproar over the issue of black money stashed away in various countries. Fasts, protests and now a back lash by the government, you name it, this issue has seen a lot of twists and turns. The big question is how long will India take to bring back all the black money that Indians have stashed away abroad. The answer is- if the government seriously pursues the issue then it will take anything between 6 months to one year to get all this money back.
We speak with R Vaidyanathan a Professor of Finance at IIM, Bangalore who is also an expert on this subject. Here is what he has to say.
As per the Global Financial Integrity which is a non profit organisation the estimated value of illegal financial flows held abroad is around 500 billion dollars. While calculating this in Indian money, the amount comes up to a whopping Rs 22.5 lakh crore. As per Konrad Hummler, Chairman of the Swiss Private Bankers Association, 1 trillion out of 2.8 trillion Swiss francs is black money. Wikileaks founder Julian Assange had also said that a majority of the funds stashed away in the Swiss Banks belong to Indians. This would mean that out of the 1 trillion US dollars more than half could be owned by Indians. This alone comes to US$ 500 billion. And this is only bank deposits.
While these are statistics, the key question is how do we bring back this money. If the government is serious about it then it can very well bring back this money. However the seriousness of the government in this matter is very crucial in this case. A delegation led by the Prime Minister of India himself must speak with the Swiss officials regarding this issue. However this need not be in public glare and there is no need to disclose names and things like that. The intention should be to bring back the money. Why I am saying that the Prime Minister should head these talks is because only then will the seriousness of the issue be known to the country in question.
Now bringing back this money may not seem as easy as it sounds. When we speak with the officials concerned in those countries, we need to tell them to return this money. However we should also offer to pay 20 per cent tax while doing so. This would make the process easier and also more convincing.
The other question now would be what happens to the persons who have stashed away their money in these banks. If the money is earned through legitimate means then that person could also go before the Reserve Bank of India and make a claim. He will need to prove that the money that was stashed away was earned through legal means and will have to submit proof for the same. However if the money has been earned illegally then he may as well forget about it.
When we speak in terms of 500 billion dollars stashed away we should also remember that this money does include some funds which are being used for narcotic trade and also terror funding. It would be very difficult to get this money back. Hence for a start we may as well bring back the money which has been stashed away by the big wigs in our country.
http://vickynanjappa.com/2011/06/06/govt-can-get-back-black-money-in-one-year/