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Pure and simple theft of national money

R Vaidyanathan, an IIM professor for over 30 years, weaves a web of tantalizing magic in his book Black Money and Tax Havens. He explains in layman’s terms the implication of: ‘Kala-dhan’ on the economy, how it gets accumulated, and where it is stored. 

He starts with differentiating between black money generated through corruption and other means. Capital, which is earned through legal means, but hidden for paying income tax, is also black money. He peppers with several examples so that even a novice can understand his explanations and arguments. Bribing public officers for a private gain, like for getting government contracts, subsidies, acquiring licences, etc., generate substantial black money. 

 

Domestic and tax-haven black money...

During 2013, then finance minister and the man who would later occupy Raisina Hills, Pranab Mukherjee, presented in the parliament a ‘White Paper on Black Money.’ It evoked a mixed response. One of the major criticisms was that it mixed up domestic black money and illicit money kept in tax havens abroad by Indians. Local black cash is dependent on the cash economy and tries to avoid formal transactions through banks due to fear of being captured by tax authorities, while tax havens concept is something broader. The former is cheating the government and the latter is cheating the country. 

 

No bar on keeping large amounts of cash

There is a positive correlation between currency denomination and black money.  High denomination notes facilitate transactions in black. There are no legal restrictions on keeping large amounts of cash with oneself. There have been suggestions to amend existing laws, but it needs political consensus, which is impossible in India. Voluntary disclosure schemes, in the years 1997 and 2016 garnered Rs.65,250 crore and Rs.33,000 crore respectively.  If the government finds who are part of both the declaration, it would be easy to find habitual culprits.

The author lucidly explains what  the tax havens are. Tax havens (aka offshore financial centres) are delightful places where we can store our money, either by depositing cash or purchasing companies in great secrecy. India stands fourth in the illicit financial outflow aggregates $ 510,286m in the last ten years. Switzerland tops in confidentiality, compared to other tax havens, says RV. 

Tax cheats money also ends up in terror financing, arms smuggling, drug dealing, etc. It is both a threat to the economy and the people. The estimated value of transactional crime amounts to $1.6 trillion to $2.2 trillion.

Black money in India ranges between $500 million to $1.8 trillion. When the stringency of legislation increases, so does the intelligence of people. Names of big companies and reputed citizens appeared in the Panama papers, but no real action was taken. 

 

Bribe to get out black money!

The author suggests an innovative way of getting back this illicit money. Bribe the high-ranking officials on an international tax haven to get the information! According to International Consortium of Investigative Journalists, the Big 4 accounting firms brokered tax rulings.

Vaidyanathan has taken a bold step towards the analysis of black money listing out big names. Though the title sounds like it will be readable only by economists, the professor’s writing style makes it understandable even to the lay public. 

I would have been happier if he had also written about post demonetisation issues. 

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