(Ishwari Bajpai is Senior Advisor at NDTV; he has been a journalist for 30 years, and has covered the elections since 1984.)We are obsessed with bringing black money back to India. We justifiably believe that there are large amounts of money ($ 500 billion has been touted as a figure) that have been illegally channeled out of India for years and are parked in various places such as Switzerland, Luxemburg and the Cayman Islands. The government, courts and now the Special Investigating Team are all chasing this money and as the Finance Minister said in his reply to the debate on the Budget, "The country will not have to wait for long for bringing back black money." Hooray! Now that that's done we can relax as the main fiscal problem seems to have been fixed. Or has it?
In all the debate about black money being smuggled abroad (rumour had it that every flight to the Gulf in the last days of the last government had sacks of rupees on board), no one seems to be asking where does all this black money come from? The debate of the size of the black economy (40-50% of the white economy) seems to have taken a back seat in quest to recover what has been purloined. Everyone seems to have forgotten that every day, during all working hours, black money is being generated in this country by millions of citizens.
Yes, we are all at fault. When you walk into a shop and agree to purchase something without a proper bill (and by proper I mean a printed or computer generated bill, not an estimate, with the name of the shop, its TIN no. etc ) you are helping generate black money. How so? If you don't take a bill, then there is no local Value Added Tax (VAT) raised on the goods, and the transaction disappears from any accounting book. No VAT, no income, no income tax. The shopkeeper enters it into his other "khaata" and the state makes no money.
Similarly, more than 90% of property deals involve a cash component; often this is as high as 45-50% of the deal because the seller wants to avoid capital gains tax (20% with indexing which would make it about 12-15%) and the buyer is 'enticed' by lower stamp duty (which in Delhi is 8 per cent).
So, if everyone knows about this, why isn't the government - any government, not just the new BJP one at the Centre - doing anything about it?
Partly, because no one is willing to think out of the box to find a solution, partly because the trading class (estimated at 1.3 crores, employing almost 4 crore people) carries so much political clout that no government, and especially not a BJP one (which has a huge trader, read bania base) can ignore. And an example of their overwhelming strength is that the Delhi Rent Act of 1995 which was signed by the President of India has never been notified. Why? Because, under that Act, the shopkeepers of Delhi would no longer be able to pay Rs 150 per month as rent for a shop in Connaught Place.
So what can a government do about all this?
Firstly, and simplest is to ask the public to insist on a bill. And encourage people to spend through debit and credit cards, thereby creating the paper trail necessary for taxing. Strangely enough, the tax department has been running ads that discourage people from using their cards. These ads say "we know how much you spent on your credit card." So, what's wrong with spending on a debit/credit card? At least, the money is white.
Secondly, given that a large proportion of goods are manufactured, it is possible to put a presumptive income tax all along the supply chain. So the manufacturer deducts 2% of the MRP of the goods as income tax and credits it to the distributor's tax account, who similarly does this the retailer. Both can then claim refunds when the time comes. This is already done with contractors, consultants and other service providers, so it can't be that difficult to implement.
Thirdly, the government must implement a Goods and Services Tax (GST) and that will improve tracking of goods across the country, as well as all the other benefits that will accrue.
Fourthly, for property, the Government can consider creating a property exchange where anyone selling a property lists it, along with a price demanded, and then there is a month-long auction period (like ebay) and the property goes to the highest bidder. A small beginning could be made in Gurgaon or Delhi to iron out issues that may arise.
Fifth, while fixing the circle rate for property (this is regularly done in Delhi) it should be based on the highest transactions in the last year rather than some arbitrary measure. Along with this, reduce the stamp duty to a reasonable 5% which should increase the white component in deals.
Finally, and most of all, the governments (state and Centre) have to realise that unless they look to tackling the black economy, they will forever be chasing black money abroad, which is the result of the problem and not the problem itself.
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