By Prof. R Vaidyanathan on 25 Oct 2016
All black money is not due to corruption, even though all corruption results in black money. If a government servant gets bribe for a favour done, then he generates black money since that amount will not be shown for tax. But if you go to a doctor and pay him say Rs 500 in cash without receipt or buy petrol without bill then you are generating black money since they may not show all amount for tax purposes. But neither act involves corruption.
It is estimated that at least 6-8 per cent of our GDP may be in the form of black money. During 2014-15 out of GDP of 125 lakh crores; we can estimate Rs7.5 lakh crore was black money. Kindly note it is a flow each year.
In the case of income declaration scheme 2016, 64,275 declarations were filed up to the midnight of 30th September, 2016 with an aggregate of Rs 65,250crore worth of hitherto undeclared incomes in the form of cash and other assets being declared. On an estimate 45 per cent taxes, the Centre will collect Rs 30,000 crore. The declaration was much higher than expected even though compared to the estimated amount of black money it is relatively very small.
There are also comparisons with the 1997 scheme of P Chidambaram, which netted Rs 33,000 crore. But the GDP has grown much during this period and that time tax rate was different.
During 2014-15 total taxes (direct plus indirect) constituted nearly 10 per cent of our GDP at market prices and Direct taxes at nearly Rs 7 Lakh Crore was 55 per cent of total taxes.
There were nearly lakhs of individuals and companies assesses to tax in 2014-15 according to CBDT, GOI. Of the Rs7 lakh direct taxes, Rs 4.3 lakh came from companies and Rs 2.7 lakh from individuals.
We need to get details of how many of these are corporate disclosures and how many are individuals. We also need to know how many who declared in 1997 also are part of current declaration. This imply that many are regular “culprits” wanting to use the serial amnesties.
Demands of earlier years pending for collection during 2014-15 was Rs 5.7 lakh crore and current year pending was Rs 1.3 lakh crore.
3 lakh appeals were due for disposal and only 24 per cent was disposed of and amount locked up in appeals is Rs 3.8 lakh crores.
Activities for which taxes are levied by government employees (known as ‘bribes’):
Acquiring Assets: Land, houses, cars, scooters — paid directly or as ‘Service Charges’ through the society, dealer etc. Any asset acquired by a citizen entails own account taxes if it is to be recognized by registration.
Carrying on trade/business: Smaller the business larger the percentage. Retail pushcart dealers/ street vendors estimatedly pay police or their agents Rs 20 to Rs 30 per day from their earnings of Rs 100-500. Fast food restaurants pay Rs 500-1,000 per week to the health inspectors of the local municipality.
Identity establishment: Birth certificates/death certificates/ration card/passport/caste certificates. The amount varies from Rs 100-Rs 1000, depending on the bargaining power and urgency. The minimum is Rs 100.
Acquiring contracts: For roads, water pipes, cables, houses for low income groups, stadium, parks etc. varies from 1-3 per cent of the amount
Availing ‘free’ services: Government hospitals, schools, electricity board, water works, RTO. It varies from Rs 10 for a bedpan service at a government hospital to Rs 10,000 for vehicle fitness inspection certificate.
Closing the eye services: Traffic Police, building set-off, wrong construction, basement parking as shops, illegal electric/water/phone connection, violating labor laws. Bringing in foreign goods not allowed above specified limit. Keeping cattle in city, felling public trees etc. The amount is negotiable with a minimum of Rs 100. At a very low level it is paying half the fare in public buses to travel without a ticket.
Provision of government gratis: Old age pension, free credit through some government schemes, land compensation, fire compensation, riot compensation. It is again anything between 2-50 per cent of the amount. In many situations the ‘fee’ is after delivery like American plaintiff lawyers who collect a percentage as fees (contingent claims) after winning the case
Reducing waiting time: All activities of government. The percentage varies from 2-20 per cent with a minimum of Rs 100-Rs.200
In all these cases corruption generates substantial black money. We have estimated elsewhere that the black money generated may be of 6-8 per cent of our GDP annually.
Around 50 per cent of the aggregate credit required by our economy, is met by the banking system and the remaining comes from non-bank sources—including money lenders. Substantial amount of the black money generated in the economy is used for financing the credit needs of the unorganised market. From that point of view domestic black money is productively used compared to illicit money abroad by Indians.