Black Money ..How to control it..Col Lamba

Sources of black money

And how to control it


Source of black money


Indian corporates invariably under invoice their exports and over invoice their imports from tax haven countries such as Singapore, UAE, Hong Kong, etc.


Thus the promoters of the public limited companies who hold rarely more than 10% of share capital, earn black money abroad at the cost of majority share holders and tax income to the Indian government.

Politicians, political parties and corrupt higher officials of government and its institutions take bribes from foreign companies and park/invest the money abroad in tax havens for transferring to India when needed. Many times locally earned bribes/funds/collections are also routed abroad through hawala channels for evading from Indian tax authorities and consequent legal implications.

The Vodafone tax case is a glaring example where foreign multinational companies also evade tax payments in India by making transactions with shell companies registered in tax haven countries

Round-tripping of black money


The unlawfully acquired money kept abroad is routed back to India by round tripping processes.


Round tripping involves getting the money out of one country, say India, sending it to a place like Mauritius and then, dressed up to look like foreign capital, sending it back home to earn tax-favoured profits.

Foreign Direct Investment (FDI) is one of the legal channel to invest in Indian stock and financial markets.


As per data released by the Department of Industrial Policy and Promotion (DIPP),

two topmost sources of the cumulative inflows from April 2000 to March 2011 are Mauritius (41.80 per cent, US$54.227 billions) and Singapore (9.17 per cent, US$11.895 billions). Mauritius and Singapore with their small economies cannot be the sources of such huge investments and it is apparent that the investments are routed through these jurisdictions for avoidance of taxes and/or for concealing the identities from the revenue authorities of the ultimate investors, many of whom could actually be Indian residents, who have invested in their own companies.

Investment in the Indian Stock Market through Participatory Notes (PNs) or Overseas


Derivative Instruments (ODIs) is another way in which the black money generated by Indians is re-invested in India. The investor in PNs does not hold the Indian securities in her/his own name. These are legally held by the FIIs, but s/he derives economic benefits from fluctuation in prices of the Indian securities, as also dividends and capital gains, through specifically designed contracts.

Foreign funds received by charitable organisations, non-government organisations (NGOs) and other associations need not disclose the Indian beneficiary.

Gold imports through official channel and smuggling is a major conduit to bring back the black money from abroad and convert in to local black money as the gold commands insatiable demand among the rural investors particularly.


Also fictitious high value round trip transactions via tax heaven countries by diamonds and precious stones exporters and importers is a channel for to and fro transactions outside the country.


Also, fictitious software exports can be booked by software companies to bring black money in to India as tax exemptions are permitted to software companies,

Unlike in earlier decades, the interest rates offered abroad in US$ currency is negligible and there is no capital appreciation if the money is parked abroad by the Indians.


So, Indians are routing their foreign funds back to India as the capital appreciation in Indian capital markets is far more attractive.


 India is the only major country where infrastructure and human resources development is yet to take place at par with advanced countries.


 Not only Indians with black money parked abroad but also foreign investor are eager to invest in India as there are not much scope for capital investment in developed countries.


Skilled human resources are in shortage and not capital resources any more.


Indian lawmakers and administrators can curtail the various misused incentives/relaxations devised for foreign investors as international capital is bound to reach India irrespective of foolproof laws.

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In spite of above methods still a large amount remains in tax heavens.


The Politician + Corporate + Babu's nexus  presses government for volunteer disclosure scheme


The Government + Media beats the Drum with thumping hand & Praises governments efforts to bring back the black money  to home


These are called

VDIS (Voluntary Disclosure of Income Scheme)1997

 or

The Income Declaration Scheme, 2016

These are listed below


In 1997 scheme was pay 30% & bring back balance of black money


In 2016 scheme pay 45%

& bring back balance of black money


The punishment of higher tax rate to many will look like a steel step forward.


But to see the hidden benefits


Take a case .say in 1998 someone evaded IT & saved 30% +cess in the subsequent years till June 2016,

& then he pays tax @ 45% & becomes  a gentleman.


So in 100 rupees he saves clearly saves 30 rupees of tax of one year.

Now see return on investment from

1998 to 2016= 18 years

And  leave aside the principal which he/ she had evaded & multiplied in 18 years


Just calculate tax part of Rs 30/ @ normal 8% interest rate of  FD for 18 years


The compound amount of Rs 30/ will come to as per bankers calculation.


Invested Rs. 30
Maturity Value will be  Rs. 124.83 P

Interest earned will be Rs.94.83P


Note: In India, banks use quarterly compounding to calculate interest in rupees.


Thus the tax rate should be 125% at nirmal without penalty .Kindly note this is taxpayer money  which they evaded . So charging them 30%/ 45% is too meagre .Rather it will be helping them & encourage evasion for future too.


Now taking into account Rs 70 & evading interest earned on income  each year for 18 years will be Bonanza.


So at least 300% of principal should be charged .

But

Which NO one will pay as scheme is not helping them .


It means these schemes are to help evaders & not to help Nation / taxpayers/ government.


Now how to bring back  these evaders to book


Recommendations


1)Digitised all properties & catch Benami / multiple properties holders.Club family properties with Adhar Card & PAN Card & Evaders will be highlighted owning properties above thresh hold limit in PAN India

2)Catch sender & receiver of money  sender to  home through safe heavens like

Mauritius and Singapore as these nation have no potential to generate huge investment

Make Bankers accountable & ensure they submit report on occurrences. To ED.IT. RBI.Finance Ministry.

Catch HNI

3)Catch HNI Investor's  Investing in  the Indian Stock Market through Participatory Notes (PNs) or Overseas

SEBI be made accountable along with bankers Make Bankers accountable & ensure they submit report on occurrences. To ED.IT. RBI.Finance Ministry.
Catch HNI

4)Catch person using Derivative Instruments (ODIs) as it is another way in which the black money generated by Indians is re-invested in India.

SEBI be made accountable along with bankers Make Bankers accountable & ensure they submit report on occurrences. To ED.IT. RBI.Finance Ministry.
Catch HNI

5)The investor in PNs does not hold the Indian securities in her/his own name. These are legally held by the FIIs, but she/he derives economic benefits from fluctuation in prices of the Indian securities, as also dividends and capital gains, through specifically designed contracts.FII transaction should only be made till they disclose source of income legally authenticated by their country.

SEBI be made accountable along with bankers Make Bankers accountable & ensure they submit report on occurrences. To ED.IT. RBI.Finance Ministry.
Catch HNI

6)Catch NGOs receiving
Foreign funds received by charitable organisations, non-government organisations (NGOs) and other associations .They should be made to disclose the Indian beneficiary.Bankers should  be made accountable & ensure they submit report on occurrences. To ED.IT. RBI.Finance Ministry.
Catch HNI

7)Catch Gold importers who do Gold imports through official channel as smuggling is a major conduit to bring back the black money from safe heaven Make Sebi responsible for MCX transactions.

SEBI be made accountable along with bankers Make Bankers accountable & ensure they submit report on occurrences. To ED.IT. RBI.Finance Ministry.
Catch HNI

8)Catch person dealing in fictitious high value round trip transactions via tax heaven countries by diamonds and precious stones exporters and importers as it  is also  a channel for to and fro transactions outside the country.Make Bankers accountable & ensure they submit report on occurrences. To ED.IT. RBI.Finance Ministry.
Catch HNI

9)Also catch , fictitious software exporters selling software to software companies to bring black money in to India as tax exemptions are permitted to software companies, Make Bankers accountable & ensure they submit report on occurrences. To ED.IT. RBI.Finance Ministry.

Catch HNI


Best of luck


Col Lamba ( one man army )

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