By NewsGram Staff Writer
New Delhi: Out of the promises that brought Indian Minister Narendra Modi to fore a year ago, a major one from the dreamy list was to bring back billions of dollars of black money that the country’s super-rich had stashed abroad. In a bid to live up to the same, his government has introduced a string of tough new measures in recent months to crack the whip on black money.
The anxiety has deepened in recent weeks as a government-imposed tax payment deadline for those who have stashed their cash in foreign accounts approaches on September 30.
The Associated Chambers of Commerce and Industry of India recently issued a statement denouncing the new law for creating “fear and panic” among industry leaders and trading professionals.
“People are uneasy and worried. The penalty and term of imprisonment are disproportionately high,” said Nishith Desai, a corporate lawyer in Mumbai. Industry experts say the rich are frantically searching for new tax havens and other ways to evade the law. No one knows for sure how much black money is hidden in India and overseas.
However, estimates range from $400 billion to over $1 trillion.
India’s history as a socialist-leaning country unfriendly to business with endemic corruption meant that the country’s rich routinely hid their wealth by hoarding cash and jewellery.
India’s ‘shadow economy’ accounts for over 20 per cent of its economic output. Only 3 per cent of the country pays income taxes. This was revealed by a World Bank estimate in 2010.
Two years ago, the investigative portal Cobrapost conducted a sting on 28 top state-owned and private banks across India in which executives were filmed on hidden camera offering to channel vast sums of customers’ unaccounted cash into the formal banking system. Real estate is another common hiding place for untaxed money.
“Land is where Indian politicians and businessmen park the maximum amount of black money. About 30 per cent of all land transactions across India are managed in cash,” said Pankaj Kapoor, founder of the real estate research firm Liases Foras in Mumbai.
According to the election watchdog Association for Democratic Reforms, 80 per cent of the income of five national political parties comes from unknown sources.
“The process of formalising the informal economy is underway in India,” said Rajeev Chandrasekhar, an independent MP (Karnataka and Bangalore Urban constituency). “A lot of people who are used to an old model of doing business in India are uncomfortable today about the new scrutiny.”
During his election campaign, Modi made the claim that so much money was stashed overseas that if he repatriated it he could deposit Rs 15 lakh into the account of every poor person.
“The big fish must not get away,” Indian Finance Minister Arun Jaitley said when the black money law passed in May.
But interviews with chartered accountants, tax officials and businessmen reveal that in recent months many of India’s wealthy have found new ways around the scrutiny.
A favourite tactic, accountants said, is sending family members abroad for 182 days, after which time they become “non-residents” with foreign accounts and businesses where the family members can stash money.
So far, only one wealthy person has reported black money holdings and paid the tax and penalty.
SC questions Centre on black money
After a seemingly long slumber, the Supreme Court on September 4 put the spotlight back on black money by questioning the Centre to detail the action taken on the special investigation team’s (SIT) recommendations, advocating stringent measures against irregularities in capitation fees, cricket, stock markets and trade-based money laundering.
A bench of Chief Justice HL Dattu and Justices Madan B Lokur and AK Sikri asked attorney general Mukul Rohatgi, “What is the fate of these recommendations by the Supreme Court-appointed SIT? The Centre will tell us about it in the next hearing on October 28.”
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