Beyond the jumla: how far has Modi succeeded in acting against black money?

What the government did

It is not yes, because the government took more than a year to enact a law to bring back black money. And the enacted law (Undisclosed Foreign Income and Assets and Imposition of Tax Act, 2015) brought back Rs 3,770 crore, a tiny fraction of the Rs 80 lakh crore that had been promised.

After the scheme to bring back black money stashed abroad failed, the government announced a new scheme in the budget speech of finance minister Arn Jaitley in February 2016. This scheme targets domestic undeclared assets.

The new scheme says people can come clean by paying 45% tax on their undeclared assets. The compliance window for the scheme begins from 1 June 2016. So we are yet to see how the scheme fares in getting people declare their black money.

What it didn't do

While it seems that bringing back black money was, in BJP president Amit Shah's words, a 'chunavi jumla' (election gimmick), there are various things that the government could have done in the past two years to tighten the noose around the black money holders.

Some events that unfolded over the past year raise doubts over the Modi government's declared intention to bring back the black money and penalise its owners.

Herve Falciani, the whistle-blower who exposed the secret accounts in the HSBC bank in Switzerland held by tax-dodgers from across the world, including scores of Indians, had offered to help India with the investigation. But the Modi regime has ignored him.

"I want to come and help Indian authorities further investigate the account holders," Falciani had told a press conference organised by Swaraj Abhiyan over Skype from Paris in November 2015.

But the NDA government has ignored Falciani's offer.

In April this year, The Indian Express released another list of Indians who may have parked money in foreign countries and violated the law related to black money.

The government, on the day of the expose by the newspaper, did announce its intent to investigate all the names announced.

According to a press statement by the government, a few officers from the investigative unit of the Central Board of Direct Taxes (CBDT) and its Foreign Tax and Tax Research division, the Financial Intelligence Unit (FIU) and the Reserve Bank of India (RBI), are monitoring the flow of information in each case.

But with the passage of time, the issue is being pushed into cold storage.

Could the government have acted differently?

Professor Arun Kumar, an expert on the black economy says the Indian government has failed to show any kind of determination to bring back black money.

"The government should have done something in the HSBC case. We know that HSBC was carrying out hawala transactions but no action has been taken either by UPA or the NDA.. Look at the steps taken by the United States, they imposed a fine of $780 million on UBS and $2 billion on Credit Suisse. On the other hand Indian government has failed to act tough on such institutions."

The Mauritius treaty

The government may have failed to take tough action against those facing charges of used the tax havens to park their black money, but it has certainly made an attempt to prevent evasion of taxes in future.

The amendment to the three-decade old tax treaty with Mauritius is a step in that direction. In May this year, the NDA government shut the door on people who invest in the country via Mauritius in order to save on capital gains tax.

Also read - Govt modifies tax treaty with Mauritius, but will it curb black money?

Under the bilateral treaty between Mauritius and India, capital gains from the sale of shares can be taxed only in Mauritius. If shares are held for less than 12 months, they're treated as short-term capital gains and attract a 15% tax. But if the shares are held for more than 12 months, they are treated as long-term capital gains, and attract zero tax.

This clause in the treaty has allowed hundreds of companies to indulge in round-tripping of black money to India by setting up shell companies in Mauritius.

For almost three decades, investors from all over the world have abused India's tax treaty with Mauritius and used this route to pump back Indian black money into the Indian economy, as nobody has an account of the money that is routed through Mauritius into India.

But will it help curb black money?

According to Prof. Kumar there are 80 tax havens in the world, and investors will simply shift their transactions from Mauritius to another tax haven.

Kumar's argument looks plausible. As Business Standard had reported in December 2015, investors were aware that this amendment was in the pipeline, and had started preferring Singapore over Mauritius for investing money in India.

Is there any long term solution to black money?

Governments all over he world have been coming together to curb tax evasion and use of hawala route to transfer black money to tax havens. The Organisation for Economic Cooperation and Development (OECD) has agreed for a new framework that will allow all interested countries and jurisdictions to work jointly for curbing the practices of avoiding capital gains tax. But it would be a herculean task to do this in a jiffy.

Credit where it's due

The government should be given credit for trying to stop tax evasion in the country. But where the government has failed is in initiating investigations against those whose names have already surfaced through various channels over the past two years.

As we all know that the biggest beneficiary of the black money economy are politicians and political parties. The lack of zeal to bring the exposed culprits to books just shows why the bringing back Rs 80 lakh crore in 100 days was just a political jumla.

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