SUPREME COURT VERSES THE STATE?

Given below is an interesting article I found while reading the daily “Indian Express” on Saturday 09-July-2011. The article reveals the astonishing fact that the Middle Class (working class) is a source of “Black Money”.

In the Supreme Court’s recent black-money order, the case against the state is made as follows. First, by following “neo-liberal” policies, the state has destroyed governance. “The paradigm of governance that has emerged, over the past three decades, prioritises the market, and its natural course, over any degree of control of it by the state.”

Second, that this lack of governance has encouraged both the generation of black money and its transfer to tax havens abroad. “The issue of unaccounted monies held by nationals, and other legal entities, in foreign banks, is of primordial importance to the welfare of the citizens. The quantum of such monies may be rough indicators of the weakness of the state, in terms of both crime prevention, and also of tax collection. Depending on the volume of such monies, and the number of incidents through which such monies are generated and secreted away, it may very well reveal the degree of ‘softness of the state’.”
Third, that not collecting “the large quanta of monies stashed abroad would also indicate a substantial weakness in the capacity of the state in collection of taxes on incomes generated by individuals and other legal entities within the country.”

Fourth, that this black money prevents the government from serving the aam admi: “In addition, such large amounts of unaccounted monies would also lead to a natural suspicion that they have been transferred out of the country in order to evade payment of taxes, thereby depleting the capacity of the nation to undertake many tasks that are in public interest.”

Fifth, that this generation of black money is not only anti-national, but threatens the security of the state. “The worries of this court are also with regard to the nature of activities that such monies may engender, both in terms of the concentration of economic power, and also the fact that such monies may be transferred to groups and individuals who may use them for unlawful activities that are extremely dangerous to the nation, including actions against the state.”

Sixth, and finally, that given these circumstances and tragic reality, the court has to step into a domain not necessarily its own. By doing so, the court is rendering an important service to the nation — stopping the flow of black money, recovering it, and thereby engendering a new order: “The resources of this court are scarce, and it is over-burdened with the task of rendering justice in well over a lakh of cases every year. Nevertheless, this court is bound to uphold the Constitution, and its own burdens, excessive as they already are, cannot become an excuse for it to not perform that task. In a country where most of its people are uneducated and illiterate, suffering from hunger and squalor, the retraction of the monitoring of these matters by this court would be unconscionable.” (All quotes are from the order.)
Black money comes via tax evasion; while tax evasion is illegal, sometimes it can be in response to bad laws. When Indira Gandhi instituted a 97 per cent marginal tax rate, practically every bureaucrat who implemented the law was creating black money. That was then; as also was the sad reality when the Supreme Court, in effect, rubber-stamped the imposition of the Emergency.
How valid is the Supreme Court’s black-money case against the government? Not very. First, the size of income-tax evasion is relatively small, and much smaller than the Supreme Court’s contention of astronomical sums. In 2010-11, total income tax payment, if every individual was fully compliant, and paid all the taxes owed, would have been close to Rs 332,000 crore. Actual tax collected was around Rs 150,000 crore and so black income was around Rs 184,000 crore, or about 2.5 per cent of India’s GDP. Not a small amount, $40 billion, but not astronomical.

Most interesting is the distribution of this black money — who generates it? Not surprisingly, the group with the largest aggregate income: the aam admi. The poorest income tax group, Rs 2-5 lakh, accounts for close to 80 per cent of all taxpayers, and close to 63 per cent of all taxable income. It is also the group with a large proportion of self-employed individuals. And also the group with the lowest tax compliance rate — around 36 per cent, or slightly more than one-third of those eligible to pay taxes in this group, actually pay taxes. This group does not come under the TDS automatic-payment system; it comprises of lawyers, doctors, and shopkeepers.
The richest group, the one I infer that the Supreme Court thinks is not paying taxes and sending this money overseas, actually has the highest compliance rate: around 60 per cent. Black income generated in this group? About Rs 37,000 crore in 2010, or only $8 billion annually. Astronomical? By no stretch of the imagination. Even the total amount of income-tax evasion black money generated each year in neo-liberal India is not astronomical.
Well-meaning people often confuse the low level of the population paying taxes with black money. The reason for the former is that India is not a rich country; one has to be in the top 20 per cent of the working non-agriculture economy to be eligible to pay direct taxes. And about 40 per cent of Indians pay taxes, and most of the non-compliant are the not-so-rich middle-income people. The aam admi is the number-one culprit in generating black income, but it is a bit unseemly to make a federal case of this reality.

Case dismissed.

(The writer is chairman of Oxus Investments, an emerging market advisory and fund management firm)

THE MONEY LINE

Black Money issue has taken  the hot seat  in all the countries &  the same is  in India. I found a this wonderful article on newspaper daily “The Indian Express” on  05 Feb.2011 which gives you the Insight about how much the money have been parked in Tax heavens and how the estimates vary from one organization to other.

For all its political uses, the estimate of India’s black money is wildly overblown The BJP estimate of fresh black money flows in India, amounting to 7.5 per cent of GDP, are evocative but sadly out of touch with reality and involve an overstatement of at least five times the actual amount.
BLACK money -how much is it? Over the last few months, starting with the Global Financial Integrity (GFI) report on India, rumours have been rife that black economy in India is close to 50 per cent of the economy. And that threefourths of this money has flown out of India -capital flight -and found a safehaven in tax shelters abroad.
The final draft of this seemingly authoritative report came out in November 2010 and was timed perfectly with the scam storm prevailing in India at that time. Recall that the story of the CAG report, and the Radia tapes, also broke in midNovember 2010. The cumulative effect of these events was to set the Indian government, politicians and civil society on fire. And not to be left behind, in response to a PIL, the Supreme Court has asked the government to release the names of the tax evaders with stashes abroad.

The BJP had first introduced the draft conclusions of GFI at the time of the Lok Sabha elections in May 2009.
Led by the octogenarian Advani, the BJP thought this was an issue guaranteed to win over votes. It set up an inhouse cell to study the draft GFI report and make recommendations. Bring back the black money, the BJP thundered. There were few listeners as the BJP suffered a large defeat. But now with the CAG’s wild-eyed and wild estimate of Rs. 1.76 lakh crore as the cost of the 2G scam, the claims in the GFI report have taken on a new meaning and urgency.

“Bring back the black money to help the poor of India,” the BJP thunders now.
And this in the name of the poor call has been applauded and duplicated by Rahul Gandhi as he thunders the same. For once, the right, Left and centre, all agree that about 50 per cent of India’s GDP (around $500 billion) is stashed abroad and needs to be brought back. Think how much poverty all that will eradicat -and the government will be able to spend all this money on schools, hospitals, nutrition, and the poor. All wrongs will be made right.

The Ministry of Finance has also joined in. The dosomething-do-good euphoria has seized Pranab Mukerjee and he has promised to address the issue in the forthcoming budget. He has called for research “bids” to study this important subject.

The article have been authored by Surjit S Bhalla. The writer is chairman of Oxus Investments, an emerging market advisory and fund management firm.

Clearly, the study of black money is an important issue.
And tax evaders have to be punished. My estimate of black money in India is based on private income tax collections and details about the calculation are contained in `Tax Compliance and Tax Rates’ (in the book, India on the Growth Turnpike, Essays in Honour of Vijay Kelkar).
And how much might total black money be in India in 2009? Only about Rs 1 lakh crore, and given our GDP is Rs 60 lakh crore, that is about 1.5 per cent of GDP. These numbers are shockingly small and especially small compared to the GFI estimate which seems to be universally accepted. The GFI numbers imply a black money flow of 7.5 per cent of GDP every year, that is, each year black money equal to five times my estimate flows into the Indian economy. Both numbers cannot be right. Which of these two numbers are closer to the truth?
The definition of black money is money that has some tax on it and is not declared.
Besides personal tax, there are other forms of tax evasion -property tax, over and underinvoicing of trade, and non-declaration of corporate income.
No doubt these forms of tax evasion are present but their magnitudes pale in comparison with the magnitude of income tax evasion. For example, corporate income tax collected in 2009 was Rs 2.6 lakh crore, an amount suggest ing very little tax evasion.

Some back-of-the-envelope calculations yield an insight into the likely magnitude of black money from income tax evasion. In 2009, India’s GDP was close to Rs 60 lakh crore; and income subject to income tax close to Rs 50 lakh crore.
But this income accrues to the entire population, and even the poor. Only the top 20 per cent of the Indian population has incomes that make them eligible to pay tax. And this 20 per cent has 45 per cent of total income. Thus, those paying tax receive Rs 23 lakh crore as income. It is inconceivable and outright wrong to think that a third of the income received as taxable income is evasion of taxes. The average personal income tax rate in India in 2009 was about 10 per cent, that is, the government should have collected Rs 2.3 lakh crore as tax. In 2009, it collected Rs 1.3 lakh crore.
Thus, the black money generated in 2009 was approximately Rs 1 lakh crore.

If the luminaries mentioned above are serious about their concern, then they should get ready to catch the aam aadmi taxpayer in this country -the one that earns less than Rs10 lakh a year, and especially the ones earning less than Rs 5 lakh a year (and more than Rs 2 lakh to be eligible for tax payment). This is the “missing middle” amongst Indian tax payers. It accounts for more than two-thirds of the black money in India. And the aam aadmi pockets this amount of around Rs 0.6 lakh crore or about 1 per cent of GDP.

Screaming about non-existent money accruing to the rich will not make this money come alive.Whatwilldosoisalowering of tax rates -something the UPA government had promised before it chickened out for lack of thought and clarity and guts to face those who live by fictitious numbers.


IT’S ALL ABOUT MONEY!

The fallout of American economy and ongoing financial crisis had affected every one. As a rescue measure US government has announced a total package worth about 990 billion dollars. Some of the European countries have also announced a bailout package. The collective of US & Europe comes to about 1.8 trillion dollars. In the same way the Black Money of various politicians, diplomats, entrepreneurs deposited in Swiss Banks should be utilized. But you will ask why?Here is the answer. As per Swiss Banking Associations Report on ‘Black Money’ the 5 major countries have their money in Swiss Banks. According to an official of Swiss Bank, the money deposited by Indians is so much that Switzerland’s 10 Five year plans can be completed.

Rank

Country

Amount($ crores)

1

India

14560

2

Russia

4700

3

England

3900

4

Ukraine

1000

5

China

960