Towards a Clean and Transparent Economy

Towards a Clean and Transparent Economy -SOURCE- Yojana (MAY - 2017)
Source : Yojana (MAY – 2017)
  • India continues to remain very low in the UN’s Human Development Index with the poor and needy largely remaining so. Last year (HDI- 2016), it was ranked a poor 131 among 188 countries.
  • Serious efforts have, however, been made to take the reforms to the next level, with the goal of benefiting those who were so far in the fringes of economic growth.
  • The main pillars of this strategy are inclusion, transparency and decentralisation.
  • The efficient implementation of these three pillars, would, for the first time, take the benefits of growth directly to the people. Of these three segments, perhaps, transparency is the most important prerequisite for secular economic growth.
  • Dispassionate examination will point at corruption as the main culprit that failed every well intentioned programme.
  • Corruption breeds black money and together they subvert welfare programmes, restrict the flow of finance to the government, constricting its ability to formulate and implement programmes and discourage foreign investment that brings money and technology for economic development, generating job opportunities in a nation struggling to give employment avenues to its young population.
  • According to the World Bank, corruption is public enemy number one in the developing world and the poor pay the highest percentage of their income in bribes.
  • India has been no exception. Interestingly, government, while mounting a frontal attack on black money hoarders, has simultaneously initiated steps for insulating the poor from corruption and bribery by innovating delivery systems.
Sources of Black money:
  • Tax evasion, Harbours Bribery, Electoral Corruption, Organized Crimes and Ostentatious Consumption and etc.
  • Economic challenge as well as a social menace, It distorts economic planning and financial integrity of the nation , It deepens the economic inequality and corrodes the social fabric of the nation.
  • India’s tax to GDP ratio is a mere 16.6 per cent.
  • Tax base of around 5.5 crore persons which includes companies, individuals and other business forms.
  • As per the Economic Survey 2016 -17, India has only 7 taxpayers for every 100 voters.
Tax Administration for a Clean Economy :
  • Special Investigation Team (SIT) headed by former SC judge B.Shah was formed to probe black money.
  • The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 with stringent penal provisions including rigorous imprisonment of 3-10 years has been enacted to effectively deal with the issue of black money stashed away abroad. Tax evasion has been made a predicate offence, under Prevention of Money Laundering Act (PMLA).
  • Rs 8,186 crore, illegally kept in offshore banks by Indians, has been brought under tax ambit despite several constraints.
  • Multi-Agency Group (MAG) was set up for facilitating coordinated and speedy investigation of cases of Panama Papers leaks.
  • Signing Double Taxation Avoidance Agreements (DTAAs )/ Tax Information Exchange Agreements (TIEAs )/Multilateral Conventions etc. with other nations.
  • Joining Multilateral Competent Authority Agreement in respect of Automatic E-xchange of Information to support global efforts against black money.
  • Signing information sharing arrangement with USA under its Foreign Account Tax Compliance Act (FATCA).
  • Regeneration of DTAA with Mauritius, Singapore and Cyprus to curb treaty abuse, tax evasion and round-tripping of funds.
  • Though Participatory Notes (PN) bring foreign investment, but they have been red flagged as a conduit to route black money back into the country by SIT on black money.
  • SEBI mandated increased disclosure requirements and restricted transfer of PN to curb money laundering in order to keep track of their beneficial owners.
  • Enactment of Benami Transactions (Prohibition) Amendment Act 2016′ which empowers the government to confiscate benami propertiesassets (without any compensation) held in the name of another person or under a fictitious name. The act has a provision for imprisonment up to seven years. As per Department of Revenue, more than 245 benami transactions have already been identified and provisional attachments of properties worth Rs.55 crore have been made in 124 cases.
  • ED registered 519 cases and conducted 396 searches leading to arrests in 79 cases and attachment of properties worth Rs.14,933 crore.
  • 64,275 declarants made disclosures of Rs 65,250 crores under the Income Declaration Scheme (IDS), 2016 which provided a chance to domestic black money holders to come clean.
  • The Pradhan Mantri Garib Kalyan Yojana (PMGKY) notified along with other provisions of Taxation Laws (Second Amendment) Act, 2016 came into effect from 17 December 2016.
  • It will remain open until March 31, 2017. PMGKY is Union Government’s second income disclosure scheme (IDS) to allow tax evaders to come clean with unaccounted wealth. It provides for 50 per cent tax and surcharge on declarations of unaccounted cash deposited in banks.
Budget 2017· 18 – ‘Transform, Energise and Clean India’ :
  • Taking forward the crusade against black money they Finance Minster proposed the following major reforms:
  • Cash expenditure upto Rs 10,000/-only is allowed as deduction to businesses.
  • Charitable trusts can receive cash donations up to Rs 2,000 only from a single source.
  • Restricting cash expense to Rs 2 lakhs only for a single transaction and in case of violation a penalty of equal amount would be levied.
  • Primary Agriculture Credit Societies which are susceptible to misuse by parking black money, are to be computerized and integrated with the Core Banking System of District Central Cooperative Banks.
  • Aadhaar has been made mandatory for filing of income-tax returns as well as for obtaining and retaining the PAN. This would solve the problem of multiple and bogus PAN and strengthen KYC verification for different transactions including opening of bank account.
Rewarding Honest Taxpayers:
  • Following are some of the noteworthy initiatives/ policy changes towards better tax administration: Without for going its sovereign right to undertake retrospective legislation, government has made it very clear that it would exercise this with extreme caution and judiciousness.
  • E-assessment has been launched in 7 cities in order to reduce physical interface between tax payer and the department along with cost and time of compliance.
  • E-Sahyog’ launched in 2015 to provide an online mechanism to resolve mismatches in Income-tax returns of those taxpayers whose returns have been selected for scrutiny to be expanded to reduce compliance cost, especially for small taxpayers.
  • Time bound grievance redressal through PMO monitored ‘Centralized Public Grievance Redress and Monitoring System (CPGRAMS)’ and ‘e-nivaran’
  • One page ITR form ‘Sahaj’ for select taxpayers.
  • Income tax Department is working on the ‘Project Insight’ to strengthen non-intrusive information-driven approach for improving tax compliance and speedy investigation.
  • The Project SAKSHAM is a New Indirect Tax Network (Systems Integration) of the Central Board of Excise and Customs (CBEC). It seeks to bolster the information technology network for the new Goods and Services Tax (GST) regime that the Union Government intends to roll out from 1st April 2017.
  • Demonetization of high denomination currency of Rs 500 and Rs 1000 led to a regime shift by punitively raising the costs of tax evasion and striking at the roots of corruption.
  • It was also aimed at countering fake currencies, greater digitization of the economy, increased flow of financial savings, and greater formalization of the economy, all of which could eventually lead to higher GDP growth, better tax compliance and greater tax revenues.
Post demonetization :
  • Almost all cash has entered the banking system providing scope to the law enforcement agencies to keep track of the money trail.
  • Investigation of cash deposits have uncovered various fraudulent practices including back dating of sales, benami deposits, sale of jewelries, bullion, luxury goods and forex to unidentified persons (without PAN), splitting of bills to avoid reporting of PAN, depositing in cooperative banks ( which do not have stringent KYC norms), deposits in multiple accounts against single PAN; etc.
  • Data have shown that deposits between Rs 2 lakh and Rs 80 lakh, totaling to Rs 5.48 lakh crore were made during demonetization, in 1.09 crore accounts.
  • A total of Rs 4.89 lakh crore, comprising deposits of over Rs 80 lakh, entered into 1.48 lakh accounts. As part of Operation Clean Money, the department of income tax sent e-mails and text messages to 18 lakh individuals in the first phase.
  • Response from 12 lakh accounts have been received on the department’s e-filing website.
  • This would help the department to eliminate genuine cases from further investigation.
  • In a written reply to the Rajya Sabha, the Finance Minister stated that the Income Tax Department has seized cash and valuables totaling Rs 600 crore in 1100 searches and survey operations conducted post demonetization.
  • Giving a chance to come clean, Government announced Pradhan Mantri Garib Kalyan Yojana under which those who declared cash deposits, (till 31st March, 2017) could pay a tax of 50 per cent and deposit 25 per cent of the amount declared into the noninterest-bearing PMGK Deposit Scheme for four years. There is no official data yet on the PMGKY.
The major reason of large scale tax evasion. According to a 2015 report from PwC, 98 percent of all transactions by volume and 68 percent of the total value of transactions are conducted in cash in India.
  • Demonetization has given a quantum push to digital transactions. While the advantages of digital economy are many, it inter alia creates transparency.
  • Top ranking countries in the Corruption Perception Index of Transparency International have reported less than 10 per cent of the total transaction in cash.
  • India stands at a distant 79th position in this ranking.
  • The National Payments Corporation of lndia has successfully implemented the Unified Payments Interface platform which facilitates inter-operability; BHIM (196 lakh people have downloaded it) and Aadhaar Pay will facilitate peer-to-peer transactions and digital payments over the counter respectively.
Goods and Services Tax (GST):
  • GST, one of the biggest tax reforms post-independence is aimed at simplifying the complicated indirect tax regime.
  • It will create a common Indian market, streamline tax administration, improve tax compliance, boost investment and growth and result in higher revenue collection; by subsuming all indirect taxes (other than custom duty) levied by the Central and state governments.
  • With a state of art GST information technology architecture and provision for stringent penalties and prosecution for tax evasion, India may see a surge in tax to GDP ratio in medium to long term.
Electoral Funding Reforms:
  • Political parties received Rs 7,833 crore funding from unknown sources between 2004-05 and 2014-15, which is 69 per cent of their total income, as per the report of the think tank, Association of Democratic Reforms, leaving us to guess the unknown sources.
  • Political funding by industrial and business houses, when shrouded in secrecy, is the breeding ground for vested interests.
  • It nourishes the unholy nexus between politics and business, forcing the politician to return the favours, subverting democracy and people’s will.
  • Thus, transparency in political funding is essential for clean economy. A small beginning has been made in the budget 2017 by limiting of cash donations to political parties from a single source to Rs. 2,000.
  • The concept of electoral bond has been proposed whereby corporate donations will be kept anonymous safeguarding the interest of the donor but the source can be traced.
Bypassing Corruption:
  • Since independence, welfare schemes have proliferated with the aim of taking the fruits of development to the poor and the needy.
  • However, the malaise of corruption has spread over the years throughout these schemes resulting in massive leakages and lining the pockets of the undeserving.
·         The Economic Survey for FY 2015- 16, for instance revealed that 40-50 per cent of the benefits under the flagship scheme of PDS are lost due to leakages.
  • The government has used an innovative mechanism namely Direct Benefit Transfer (DBT), to transfer the money value of the benefits directly into the accounts of the deserving poor, bypassing corruption.
  • A massive drive was launched in 2014 to take banking to the poor and under privileged, on which the structure of DBT is being erected.
  • The trinity of Jan-Dhan (around 25.7 crore accounts opened), Aadhaar (crossed 112 crore enrolment) and Mobile has provided the foundation for transparency and inclusiveness.
It has been reported that presently, 84 schemes in 17 ministries are covered under the DBT saving 50,000 crores over the last three years. Uploading the list of beneficiaries for anyone to verify could be the next step to bring further transparency.
  • Government has also streamlined and removed scope for grand corruption by mandating auction as the only route for allocation of natural resources, through amendment of Mines and Minerals (Development and Regulation) act.
  • eMarketplace (GeM) for procurement of goods and services by the Government Ministries/ Departments, PSUs, and autonomous bodies.
The bold steps taken by the Government to combat corruption and to clean the economy are showing appreciable results. If the campaign is pursued with equal vigour and imagination it will usher in an economic architecture spawning myriad benefits from the poor to the rich, removing poverty, creating employment for many and upgrading the much needed skills. The process cannot be without certain amount of pain which is inevitable in any transition. Nothing comes without sacrifice and in this case, too small a price to pay for a clean and transparent economy.
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