INTRODUCTION

In the present situation Indian Government is facing many economical and political problems.

The economical problems like

Inflation Poor educational standards Poor Infrastructure Corruption Tax Evasion Existence of “Black Money” Balance of Payments deterioration High levels of debt Inequality has risen rather than decreased Large Budget Deficit Illegal import

Political Problems like

Terror attacks from outside War threats from Pakistan, China Terror attacks within India like Maoist Boundary problems with Pakistan and China Problem in Kashmir

Over here I would like to discuss the economical problems of India. India is well known for its corrupt officers and politicians irrespective of their post they have. India is having all its economical problems mainly because of two aspects. One is corruption and the other is existence of “Black Money”. If Corruption and Black Money is removed most of the economical problems would be removed and moreover some of the political problems can be solved.

Corruption is found not only in India. It is found throughout the world. All the countries are fighting to stop corruption. But they are not able to find a solution to stop it.

Because of corruption “Black Money” exists. “Black Money” it doesn’t means that it’s black in color. Money which is unaccounted or not the proper tax is paid where the tax has to be paid.

But arguing whether black money or corruption came first it’s like whether egg or chicken came first, is not necessary over here. We are in a situation to get out of both.

CORRUPTION

“Corruption is the abuse of entrusted power for private gain. It hurts everyone whose life, livelihood or happiness depends on the integrity of people in a position of authority”.

- Transparency International

Corruption is a source of income for the people of the government department made them susceptible, bringing with it more inefficiencies and the easy way of making money with less or no accountability. The crime of corruption is easily forgotten, the law offers easy way back into the mainstream and acceptance by the society. In addition to that it is the lure of luxury, personal status enhancement and the false sense of elitism that makes the corrupt vulnerable to illegal and unethical means of acquiring wealth.

Indian society still has a cultural setup of having the "man of the house" to work for a living, while the wife usually deals with the household work, and this puts a pressure on the man to make the living more luxurious. The routine jobs are usually for life-long, with the support of a union there is a lesser fear of losing the job and there is the pressure of dealing with rising prices of commodities and sponsoring future education of children. The society, the social upbringing, the culture and a general greed also plays a critical role in influencing a timid mind. The lack of instincts and to avoid the time consuming bureaucratically setup of the organization, the corruption may be a easy way out for people who bribe to make things happen.

LEVEL OF CORRUPTION IN INDIA

In India corruption is found from the bottom level of the organization from Gate keeper, pun to the high profile of the organization, among commissioners, police inspectors, traffic police, stock exchange brokers, recruiters, sportsmen, judiciary and the government employees in municipal offices, military establishments and also in government contracts corruption is seen and felt in every transaction from bottom of the chain till the top.

In India we can’t find any government department without corruption. In recent time we are finding corruption in the private sector also.

If anyone wants to get a certificate right from birth to death he has to pay corruption along with the government fees which will not be mentioned in the application. A person is paying corruption fees because he wants those certificates which are necessary for him. So the government officers are taking an advantage over him. Even though if he is not in urgent also he has to pay the corruption fees else we won’t those certificates throughout his life time.

Note: All in the sense, who are all involved in corruption. Not all the government employees.

WHY CORRUPTION…………..?

FROM THE POINT OF CORRUPT EMPLOYEES

Indian government does not pay much for their low carder employees, whereas their needs and wants are much, which they can’t satisfy or get with that low income. So automatically they are looking for another alternative source of income. That is Corruption, by which they are getting their things.

Moreover, if they want earn more, and then they have to be in a high post. If they want to get those posts also they have to pay the corruption fees to their selector. They are thinking that it’s an investment. So later on they are getting their returns. If that person is already a government employee then he has to pay less where as if that person is new then he has to pay more when comparing to the old government employee who is ready to pay for that post. This is one case.

But most of them are waiting to get the high posts, where they are ready to pay whatever the corruption money may be. Because they know what kind of return they are going to get back by way of corruption. It does not apply for getting new post. It also applies for getting the transfer also.

So whoever is going for the government job they have to pay the corruption fees. Also they want to get that back, they are charging other. So it became a chain. Now we are seeing its effect in all the government departments which have hampered the countries growth in a very large extent.

FROM THE POINT OF POLITICIANS

If a person wants to become rich very quickly then the right job is becoming a politician. For that he has to spend large amount money and time for branding himself. Moreover if a person wants to stand for post right from a ward councilor to M.P he has to spend huge amount of money from his pocket for camping, posters, public meetings, etc.,

After wining in the election he is doing all kind of corruption activities first to get back those expenses which were his investments. Later he does because he wants return on his investment. On this due course all the government employees and people under him are getting the benefits.

FROM THE POINT OF GENERAL PUBLIC

If a person wants to get any job done from the government office, which would take much time, where he is not ready to wait for such a long time or he may not be having the necessary papers that are needed. Then he voluntarily pays some money to get his job done.

Also if a person does not want to involve in any activities or in any case (crime activities) then he is ready to pay the money to get out of that. Moreover if a person is going against the rules and regulation or if he is not paying the taxes properly or if he is involving in any kind of illegal activities and don’t want to caught means, then the magic is very simple. If he is ready to pay a portion of the benefits (in terms of money) to the government employees as corruption then they will be keeping quite. Moreover they will give you more ideas how to do those activities more cleverly.

A SMALL EFFECT OF CORRUPTION

The World Bank has suspended $800 million worth of loans to India's health sector after detecting corruption in procurement. Fair enough: corruption should be checked. Yet, if corruption is really a no-no, the Bank should stop almost all lending to India, so widespread is corruption here. The Bank may have just discovered corruption, but it is no news at all to the public....

Source: http://hubpages.com/hub/Stop_CorruptionSave_India

INDIA’S RANK IN CORRUPTION

Transparency International, the global voluntary organization is fighting against corruption. Its main motive is to bring people together in a powerful worldwide coalition to end the devastating impact of corruption. TI’s mission is to bring the world without the corruption.

Transparency International challenges the inevitability of corruption, and offers hope to its victims. Since its founding in 1993, TI has played a lead role in improving the lives of millions around the world by building momentum for the anti-corruption movement. TI raises awareness and diminishes apathy and tolerance of corruption, and devises and implements practical actions to address it.

They are the countries according to the level of corruption on a scale of 0 – 10. If a country gets 10 then it shows the country is very clean. But if a country gets 0 then it shows that the country is highly corrupt. Also they have given rank to each and every country according to that scale. If a country gets the 1st rank then the country is very clean and last rank shows highly corrupt.

Right now they are having “Corruption Perceptions Index 2010”. For this they have taken 178 countries. In this index countries like Denmark, New Zealand, and Singapore are in rank 1 with score of 9.3. Whereas countries like India, Albania, Jamaica and Liberia are in the rank of 87 with the score of 3.3.

This shows how India has been corrupted.

Source: http://www.transparency.org/

This video will show you a sample of corruption.

http://www.youtube.com/watch?v=HHlsfL2X40Y&feature=player_embedded#!

TAX EVASION CREATES “BLACK MONEY”

No one in the world is ready to pay taxes. Indians are not in the exemption list. When we ask anyone, “Why you are not paying the taxes properly?”

Then the possible reply may be “I not getting any benefit out of the tax that I am paying. Also it’s an expense for me and it would result in the reduction of my assets.”

Other possible reply me, “How does it going to make any difference if I pay and others don’t pay?”

In India if take 10,000 transactions, taxes paid properly not more than 1%.

Some examples of major tax evasion transactions

- Purchase of land.

- Purchase of any materials or goods from an unorganized sector where the role of government is

very little or no role.

Some examples where taxes are paid fully

- Sale of petrol, diesel, LPG, Turbine fuel, Kerosene.

- Goods produced and sold by government and government owned companies.

- Some companies – where they can’t maintain the accounts

Here the taxes are paid fully because, the company is owned by the government. So its employees are not getting any benefits even if they involve in tax evasion.

FOR INDIRECT TAXES

Taxes (Indirect Taxes) are not paid for most the goods and services that are sold in India. So people are getting the goods and services at a lesser price. Because of this if a particular person or a shopper keeper puts all the taxes in his bill and sells the goods no one will buy his goods. Then he has to close down his shop and go to home without and business. In order to sell his goods, he is selling the goods without adding all the taxes. This is the mentality of the people. One can change their mind set. Even if except a change, then we are fools. It’s just like expecting a thief that he will not steel from today. In realistic this is not possible. Likewise, expecting people to ask the shop keeper to charge all the taxes is not possible. Nowadays, if go and ask a rate a particular product there are two rates i.e. one with taxes and another without taxes.

Here all the government officials like sales tax people knows which shop keeper is selling and services with tax and without. But the sales tax officers are keeping quite because they are getting their corruption regularly. There will be a problem for the keeper for the sales tax people only when did not may his corruption payment on time. Else also don’t have any problem.

This is well known to all. I am not telling anything new. If this is shocking to you means then you are not updated with current market conditions. This is even known to the President and Prime Minister of the country. But what to do? We need some solution to get out this.

So all the profits that, both the buyer and the seller of the goods and services are turning to be “Black Money”. This is the major problem in all the economy.

FOR DIRECT TAXES

There are many possible ways of tax evasion in India. One simple way I can tell. If a person has a land even a waste land i.e not suitable for agriculture, he can involve in tax evasion. The trick is very simple. He can earn through other source but he for the income tax he can tell that he earned that money through agricultural activity where the tax rate is 0%. It is not necessary to own a land. Even he can tell that he got the land on lease. Preparing a false document is a not big task that too in India.

As per the income tax act, government is expecting all the persons to file their income tax returns voluntarily and to pay the taxes. Moreover the government doesn’t have all the evidence what an individual is earning. Expecting voluntarily to pay the taxes is foolish. Government should have all the evidence that, what every individual is earning?

TAX PAYERS IN INDIA

The sad part over here is, as of today the population of India may be more that 120 corers. But the no of people who are paying the taxes are very little. Only 3.34 corers are paying the taxes which include all the corporate and SMEs which is nearly 2.78% of the population is paying the taxes.

How can anyone expect the government to serve all the people with only 2.78% of the population’s taxes? This is unfair on our part. Then we will blame the government that they are looking only for the industrialist and the lower level of the population.

Source: http://freepress.in/business/total-income-tax-payers-assesses-in-india/

BLACK MONEY

“Black Money” it doesn’t means that it’s black in color. Money which is unaccounted or not the proper tax is paid where the tax has to be paid. During the Parliament election camping, some political party raised the issue of Indian black stashed in Swiss Banks and numerous other tax havens. They quoted the massive figure of $1.4 trillion (more than India’s nominal GDP) as the amount being illegally held abroad in numbered accounts.

Source: http://mananvyas.com/politics/black-money-in-swiss-banks-analysis/

The above mentioned figures were gone out of the country during the period of 2002- 2006. All are just an estimate. Then think of amount of Indian money that would be lying there till now since from our independence. Moreover these figures are not correct figures. I think there would some $ 10 trillion would lying in those tax heavens of Swis banks.

Dishonest industrialists, scandalous politicians and corrupt IAS, IRS, IPS officers have deposited in foreign banks in their illegal personal accounts, which have been misappropriated by them. This amount is amount is about 13 times larger than the country’s foreign debt. With this amount 45 corer poor people can get Rs. 1,00,000 each.

This huge amount has been appropriated from the people of India by exploiting and betraying them. Once this huge amount of black money and property comes back to India, the entire foreign debt can be repaid in 24 hours. After paying the entire foreign debt, we will have surplus amount, almost 12 times larger than the foreign debt. If this surplus amount is invested in earning interest, the amount of interest will be more than the annual budget of the Central government. So even if all the taxes are abolished, then also the Central government will be able to maintain the country very comfortably.

Source: http://wiki.answers.com/Q/Total_black_money_in_India

Then think of Black money within the country. If $ 1.5 trillion is going out of the country means then that clearly shows they don’t have that much space to store that. This money is only big shots money. Then think of rest of Indian population who are having their black money in the form of gold, real estate and in other forms.

From now onwards no one in the world have the right to say that India is a poor country.

Ok. How can solve these problems of Corruption and “Black Money”?

I have a solution to solve this problem.

DEMATERIALIZATION OF CURRENCY

If we remove the physical existence of money transactions i.e. in the form of currency and coins and if we make all the money transactions through online this will be stored in a database, under the government’s control. Then there is no possibility of corruption and having black money because all have to give their reasons for each and every transaction to the government.

For this we need to do so basic stuffs to make this as a real happening.

COST OF INFRASTRUCTURE

Now the Indian Government is working on the “Unique ID” project. With this all the citizens of the country will a no. Then the Unique ID can be used as the user ID or the A/c No for all the individuals. So an individual should receive a plastic card like an ATM or Debit or Credit Card. By this only he will make all the transactions.

- For this we need create a new core banking solution which will adaptable for this kind of

transactions in huge numbers. We should a storage capacity of at least 100 Petabytes. The cost of 1 Petabytes will around $ 4 million. Then the total would be around $ 400 million (Rs.1, 800 corers)

- Then the cost of developing a new banking solution would cost around Rs. 1,000 Corers. The

software should be designed in such a way it should take the back up for every 30 seconds. So that loss of data can be prevented.

- Then we issue the cards to all the individuals, corporate, kind of business houses and all kind of

shops. The cost issuing these cards would cost around Rs. 1, 500 Corers.

Then all the shop should be provided with a swiping machine. This machine should be different from the existing. It should have option of scanning the thump impression or scanning the retina of the card holder. Also the transaction can be possible only after the password. A transaction will be possible after swiping the card and scanning the thump impression or retina of the card holder and entering the password. Each every user will be provided with a internet usage and tele-banking password so he view all his transactions and can listen his to his some of his transactions.

- This kind of swiping machines would cost around Rs. 6, 000 Corers. i.e. one shop of every 1000

persons then we have to purchase 12 lakhs swiping machines. Each will cash Rs. 50, 000 because of this advanced technology

- Then, these swiping machines should be connected with internet. Since 3G service is going to be

in usage by the year, we can get the connections easily through wireless. For providing internet connection we need to spend around Rs. 100 Corers yearly.

- In some areas internet connections may not be available. For setting up of the boosters’

government needs spend around Rs. 1, 500 Corers.

Then we need some machines or we have to set up an office for making the fund transfer from one people to another. For that government can undertake the existing ATMs since physical money is removed from the system then there is no need for that. Nowadays ATMs do other services also. So the government can make a tie up with banks for using these machines and also their part their office space. This will a minimum cost.

- Then we have to educate people how to use these card systems. That would be costing around

Rs. 1, 200 Corers.

PARTICULARS COST In INRStorage Device 1,800New Software 1,000Cards 1,500Swiping Machine 6,000Boosters 1,500Internet Connection 100Education 1,200   

Total13,10

0

For this government has to spend nearly Rs. 13, 100 Corers.

Architecture

This is how all the transactions will be made. If there is any problem in the transaction then the person has to go to nearest bank or any centre for clarification.

Source: Google Images – Core Banking Architecture.

PROBLEMS

Anyone can ask me “For using the swiping machine we need electricity. But the penetration of electricity in rural and in villages is not 100%. Then how is it feasible?”

Now the government of India has launched a program “RAJIV GANDHI GRAMIN VIDYATIKARAN YOJANA” to electrify all the villages in India. So we the problem will solved easily. This map shows the Electrified Village Map

ELECTRIFIED VILLAGE MAP

Source: http://mapxl.com/indiamaps/electrified-villages.html

“Is it necessary to adapt this mode? Instead of this why don’t we change the system?”

If we change the taxation system also then people will find many loop holes in its and again the same thing will happen.

How to educate the people for using this system?

In India we can find mobile with more 60% of the people. So this system is also like using the mobile. So we don’t want to worry of this 60%. The remaining 40% will the problem.

“Is this hack proof?”

Any kind of system design can hacked. But in this system if your account is hacked means then your fund should to transfer to others account. So easily we can trace the money.

“How this system will put a stop to corruption, tax evasion and black money?”

If a person is receiving money from others he has to tell the reasons to the government. If a government employee is receiving money from sources then he has to disclose all the details. So it cannot be possible.

If I am going to shop and buying a goods then I have to pay the money which through online. So abusively the shop keeper has to prepare the bill.

If a politician is involvining in any kind of corruption activity then he has to take the money. If he takes the money we can find that in his records. Even if he tries to do by this binami then that person has to tell his source of income.

How can we get the “Black Money outside India”?

If a person has earned the money he needs his money at any cost. So he has to bring it back. Else he has to forget that money. Moreover now Indian government is trying to bring that back.

CONCLUSION

In India, this system has be implemented by the politicians and the government employees. But they are the one how is going to get affected badly. These implementations are in their hands. If law makers are the law breakers then the possibility of implementation is very very little.

One question which agitates many people’s minds is: “Can Black Money be eliminated?”

The answer is very simple. “Can greed be eliminated?” 

In other words, if greed can be eliminated, black money can be eliminated. As per the Indian philosophy, this whole society (Samsar) is a product of Nature (Maya). Maya has two instruments (relevant to present subject): (i) Greed & (ii) Fear. Most people are greedy to achieve material wealth which does not belong to them. Hence most people are running towards temptations (a consequence of greed) and away from fear. As long as there is Samsar, there will be people who do not want to

pay taxes, who want bribes and so on. Monetary result of all crimes will be black money. 

It is also said that: “The more greedy a person, the more fearful he is.” If this were true, it would be very simple to eliminate black money. Put the fear of law in the minds of tax evaders & you eliminate black money. Experience shows that the game played by Maya is not so simple. The highest authorities that are supposed to eliminate black money, them selves are greedy. Law has generally been proved to be ineffective against the authorities. And when the businessmen, bureaucrats & politicians form a cartel, hardly any thing can be done. 

Is there any purpose of having discussion on attempts to eliminate black money? While black money cannot be eliminated, it can certainly be regulated. And should be regulated. How to regulate black money is the issue we discuss in this paper. 

I do not propose to discuss detailed income-tax sections and the complex technicalities involved (except for one specific section on FIIs). Instead, I present here some thoughts on black money.

1. Black money is not just money without payment of income tax. Black money can be generated by bribe, theft and other serious crimes. Hence black money is present even in the countries where there is no income-tax. A manufacturer may want to avoid excise & sales tax. He would sell the goods in black and create black money. School & college donations are an important reason for black money. When a student gets admission by paying black money, the society has corrupted a young person even before he graduates. That student is most likely to consider black money as normal and essential part of the life. 

Black money is universal. Indians do not have the monopoly of black money. I believe claims by media that: “the largest amount of black money in Switzerland belongs to Indians” are just innocent ignorance. Indian economy had been comparatively small economy. It is only recently that in terms of purchasing power Indian economy has become a large economy. So far the U.S. economy has been the largest. And the U.S. tax laws are far worse than the Indian tax laws. Considering the fact that all human beings are equally susceptible to the forces of nature (greed), it is a simple arithmetic that the black money owned by U.S. citizens should be many times larger than the black money owned by Indians. Add to this black money arising from the European countries, black money owned by Kings & Sheikhs and so on. Indian black money cannot be more than a small fraction of the global black money. 

So, black money is universal (geography) and forever (history) present. It is omnipresent.

2. Black money is “Omnipotent”. Dawood Ibrahim could wage a war against India (in the years 1992 & 1993) and cause tremendous losses to India by bribing several customs officers & others in India. Since black money is free from all taxes, sometimes it is more powerful than white money. 

Consider a simple illustration. Mr. H is an honest man. He pays full direct tax on his income and pays full indirect taxes whenever he buys goods. He buys everything by insisting on receiving proper invoice. 

Mr. E evades all taxes wherever possible. 

Both of them want to purchase a refrigerator (fridge). For the manufacturer of fridges, the sales price is say, ` 10,000. When excise, sales tax & octroi are added, the retail price is ` 20,000. The manufacturer is ready to sell the fridge: (i) with invoice after charging full taxes or (ii) without invoice and without any taxes. 

Mr. H will earn ` 30,000, pay a tax of ` 10,000 and purchase the fridge at a price of ` 20,000. In other words, he has to earn ` 30,000 to be able to buy the fridge. 

Mr. E will earn only ` 10,000 and purchase the fridge in black without paying any direct or indirect taxes. 

This illustration clearly shows how a tax evader has three times the financial power as compared to an honest tax payer. There is a huge temptation for evading taxation. Is it logical to expect ordinary mortals to be moral enough to avoid such strong temptation!

Let us see some important developments which caused a black money economy in India. Government of India’s responsibility: paragraphs 3 to 6 below. Tax Payers & Tax consultants’ responsibility: paragraphs 7 & 8 below. 

Probable Solutions: paragraph 9 below.Result: Paragraphs 9 & 10.Future: Paragraph 11.

Does Government of India Cause Black money!3. A History of High Tax Rates:

Consider the maximum marginal tax rates in the year 1974. Income-tax rate for was 98%. Wealth-tax was 8% and estate duty

was 80%. Let us use some arithmetic to understand the economics.

Assume that Mr. H had a wealth of ` 10,00,000 and he was earning an income @ 15% on his wealth. Thus he earned ` 1,50,000 per year in addition to his normal business incomes. 

Now he would pay income-tax of ` 1,47,000 (@ 98%). He would pay wealth tax of ` 80,000 (8% of wealth). Thus on a total income of ` 1,50,000 he would pay total direct tax of ` 2,27,000. If he had to remain honest, he would have to sell part of his wealth every year just to pay the taxes. Presumably no honest tax payer would have any substantial savings left. And yet the Government imagined that there will be people with large estate & imposed an estate duty @ 80%. GOI ministers were really imaginative.

Consider a large industrial house in India. Chief promoter of the industrial house held 1,00,000 shares in the company where market price was ` 100 per share. Market value of the shares was ` 1 crore. 

On his death, the heirs would be liable to pay an estate duty of ` 80,00,000. There is no arithmetic error. 80% of the market value of estate was payable as duty.

Naturally no industrial house would have liquid assets to pay a tax which amounts to 80% of their total estate. Hence the heirs would have to sell a significant portion of their inheritance. When the family members of the industrial house come forward to sell their shares in the market; the word spreads and the share prices crash. Let us assume that the price goes down from ` 100 per share to ` 60 per share. 

Even if the heirs sold 100% of the inherited shares, they would get only ` 60,00,000. This would be insufficient to pay the whole of the estate duty. It means the heirs would have to sell their personal assets to pay the full estate duty. Well, thankfully, there were provisions so that one would not pay more than what he inherited.

Tax evasion was a compulsion in those times. Government was the cause. Only people having incomes & wealth below taxable limits or irrational people paid full taxes. India did have some irrational specimen. (Please see paragraph 9.1 below. Today India has one of the best direct tax rate system.)

4. Absurd Laws:

FERA will go down in Indian history as a classic piece of absurd law. It went directly against the business interests of the citizens. Result was, FERA was violated by almost every one who had any thing to do with foreign exchange. Following is a summary of long

essays I have written earlier on the subject.

(i) Absurd FERA together with the facts that (ii) rupee was continuously depreciating (iii) and tax rates were usurious; made hawala (transfer of one’s savings outside India) necessary to protect one’s wealth. Stiff customs dutyrates with absurd import licensing made smuggling profitable. Gold Control Act which wanted to prohibit Indian women’s natural desires, made gold smuggling profitable. All these became complimentary to each other. We had a black money market larger than white money market.

More serious was the issue that Indian wealth was running out & government of India was begging before the “Aid India Consortium”. I submit for your consideration the statement that: “GOI was chief reason for black money & poverty in India”.

Thankfully, Dr. Man Mohan Singh (as Finance Minister) & Late Mr. Narsimha Rao (as Prime Minister) started a liberalisation process in India in the year 1991. Our prosperity today (though limited) is due to the liberalisation.

5. Does Government abet tax avoidance!

In the current case going on in the Supreme Court of India on black money (the public interest litigation filed by Mr. Ram Jethmalani) Honourable Supreme Court has asked Government of India to disclose the names of the people holding black money abroad. As per media reports Finance Minister Mr. Pranab Mukherjee has said that the Government cannot disclose the names of the people alleged to have black money in Swiss Banks. His reason is that the Double Tax Avoidance Agreement (DTA) prohibits disclosure of information. 

5.1 Extract of the relevant article from OECD Model is given below: 

Article 26 (1) – The competent authorities of the Contracting States shall exchange such information as is forseeably relevant for carrying out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, insofar as the taxation there under is not contrary to the Convention. The exchange of information is not restricted by Article 1 and 2.

Article 26 (2) – Any information received under paragraph 1 by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic laws of that State and

shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above, such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions. 

{There is no typing error. Double Tax Avoidance Agreements (DTA) are written in such a language that most people cannot understand them. I don’t think it is deliberate.} 

5.2 However, the agreement with the Swiss Government does provide that the information exchanged under DTA shall be maintained as secret information. 

(i) OECD Model provides for the disclosure of information before the courts. (ii) In the year 1994 when GOI executed DTA with Swiss Government, every one knew that the Swiss banks store world black money & Swiss Government passes laws which help Swiss banks. One wonders why the Indian Government did not insist on a clause similar to the OECD clause.

5.3 We have no Double Tax Avoidance Agreement (DTA) with Liechtenstein. Hence there is no restriction on Government of India against disclosing information about Liechtenstein information. 

The German Government has offered information to any Government in the world which wants the information on tax evaders having money in tax haven banks. This information is not under the DTA. It is freely available. Hence there cannot be any restriction against publication of the information. Yet GOI refused to take the information.

5.4 Azadi Bachao Andolan (ABA) is an NGO from Allahabad. It made a claim that India – Mauritius DTA was abused by FIIs for avoiding huge amount of Indian income-tax. Delhi High Court agreed with ABA. At this stage Government of India went to the Supreme Court appealing against the Delhi High Court decision. One would expect a normal Government to be happy if tax avoidance through treaty shopping is held to be invalid by the court of law. Instead, Government itself went to the Supreme Court and claimed that India – Mauritius treaty is a valid treaty. Is it not a big surprise! 

5.5 This Government goes on signing Double Tax Avoidance Agreements with several tax havens. And then makes public noises

against tax avoidance and treaty shopping!!

5.6 A lot has been said in the media about Mr. Hasan Ali Khan and the allegations against him. Even more has been said about how Government of India appears to be protecting him.

6. There has to be an incentive to pay tax. It is not that every citizen is dishonest. Some people realise the value of having a good Government providing law & order and all other services.

There are so many people who make substantial donations. They do not expect any personal benefit for themselves. If their money is used by the NGOs and if some poor family benefit, the donors are happy. And yet these vary donors would not pay full tax. Why? They see their money being wasted in huge corruption and wasteful expenditure by GOI. I submit, even today, GOI (which includes politicians) continues to be the chief reason for black money in India.

In the opening paragraph & paragraphs 1 & 2 we have seen the natural instincts which cause black money. Paragraphs 3 to 6 expose Government’s responsibility for black money. Now let us see our responsibility for black money: paragraphs 7 & 8.

7. Role of Private Sector in Black money:

Normal definition of black money is: “that money on which income-tax is not paid and which is concealed”. Now this definition needs to be broadened. 

I would say that wherever tax is due but not paid – whether by legal or illegal means, it is black money. It may be concealed or it may be open. That does not change the fact that it is illicit money. In other words, there is no difference between tax evasion & tax avoidance. Both bleed Indian economy. 

If a farmer genuinely earns agricultural income and does not pay income-tax, his income and wealth are white money. However, if an industrialist converts his black money by disclosing it as agricultural income, it is still black money. He may be able to produce some paper work showing the income as his agricultural income. It does not mean anything. Since the papers do not tell reality, they are worthless. This is plain & simple money laundering. (Prevention of Money Laundering Act does not cover black money as scheduled offence. Here I have used the term “Money Laundering” in the more popular sense of the term.)

Similarly, aggressive tax planning is also Money Laundering. For example, treaty shopping. Or use of tax havens. When the papers regarding tax haven companies (Certificates of incorporation, residential status, claims for DTA relief etc.) make a statement

different from reality, in effect those papers are worthless. 

Similarly, where an FII or an MNC does aggressive tax planning and avoids Indian taxes, by using treaty shopping or tax havens, their income is also black (illicit) money.

8. Effective Rate of Tax (ERT):

8.1 It is very interesting to hear some professionals – especially those representing FIIs and MNCs. They claim that a foreign investor or FII is concerned with “Effective Rate of Tax” (ERT). For the investor Indian tax is a cost. They would like to minimise the cost to zero. 

If these institutions & companies having billions of dollars of turnover and earning incomes in India do not pay tax then who is supposed to pay tax! It is one thing that in USA, the Government taxes the middle class and gives reliefs & exemptions to the rich. We know the results of such an inverted system of social justice. How can we in India adopt such absurdity! 

8.2 However, our concern has no value. These FIIs are capable of making representations before the PMO and get their exemptions. It is known to every tax professional that today most of the FIIs do not pay any income-tax in India on one of the two grounds: (i) “We have business income, no PE in India and hence no tax.” or (ii) “We earn capital gains. We are investors from Mauritius or Singapore and hence under DTA no tax.” 

8.3 Direct Taxes Code (DTC) was supposed to plug all kinds of tax avoidance. However, as per the DTC II draft it appears that this wide scale tax avoidance may continue even under DTC. As per the DTC provisions, incomes earned by FIIs will be treated as capital gains. Hence the FIIs investing in India through Mauritius or Singapore may escape the Indian tax even under DTC. 

8.4 Treaty Override: DTC Section 314(141) (b) read with section 46 deem FII income as capital gains. This provision is not protected under section 291 (9). Let me elaborate. India has accepted the stand that: when there is a difference between the provisions of DTA and Income-tax Act (ITA), which ever provision is more beneficial to the assessee shall prevail. This position will continue under the DTC. However, section 291(9) provides that the specific provisions listed under the section will override the DTA. In other words, anti avoidance provisions like GAAR & CFC will override DTA. 

However, section 314(141)(b) is not included in this list of protected provisions. 

An FII investing in India directly from USA or UK can claim as under. It is earning business income. FIIs have large volume of transactions and all conditions of business generally satisfy the stand that they have business income and not just capital gains. Hence article 7 will apply. If they do not have a PE in India, they are not liable to tax in India. DTC deeming provision shall not apply to FII. The provisions of DTA shall override DTC. Their incomes from India will be tax free.

8.5 If Government of India wants, it can take following corrective actions regarding FIIs’ tax avoidance: 

(i) Declare that treaty shopping will be clearly covered under GAAR provisions. Hence any one investing in India through a tax haven will not get DTA relief. This is of course an involved subject and detailed provisions have to be made. 

Prima facie, treaty shopping is covered by GAAR. However, it is the discretion of Commissioner of Income-tax to hold it as an “Impermissible Avoidance Arrangement”. DTC Section 123. This means, there can be litigation. And there can be some decisions where treaty shopping may be permitted. It is better for Government to clarify & announce the matter.

(ii) When an FII does business in India where they have any two or more of the following in India: (a) Custodian (b) bank account (c) research organisation & (d) broker; then it will be deemed that the FII is conducting business in India. This deeming provision would apply even if the FII does not have its own office/PE in India. 

Alternatively, it can be provided that when an FII buys & sells securities in India, the share broker will be considered as a PE of the FII. He will be liable to pay tax for & on behalf of the FII.

One has to see whether Government of India is determined to act against tax avoidance or would just make public noise about tax avoidance and then succumb to the lobbies. 

8.6 It is necessary for the Government of India to declare very clearly that: “The effective rate of tax in India is 30%. If any one earns income in India, he is expected to pay 30% tax except where the law specifically gives a relief. It will not be accepted that a non-resident earns income in India and then does not pay any tax in India.”

9. Corrective Steps to reduce Black money (General):

Black money can be reduced if it is made (i) either less profitable than white money, or (ii) by making it difficult to use black money. Let us see the steps taken so far by Government of India (GOI) in

both directions. 

9.1 Black money can be reduced by making it less profitable. 

Government of India has taken huge steps to make the black money less profitable. From the earlier direct tax rates of 98% / 8% / 80%, the current position is that: estate duty & gift tax are abolished. Wealth tax is reduced to 1% after substantial concessions & exemptions. Income-tax rate is 30%. 

Earlier black money was a compulsory and unavoidable part of the Indian economy. Now if the businessman wants, (purely from tax point of view) he can pay the normal taxes. In fact, today Indian tax rates are better than the rates prevailing in USA, Germany & Japan. With the absence of estate duty in India, there is a huge relief for the tax payer. No one can expect a better rate mechanism in an industrial country. (City countries like Hong Kong & Singapore are different. Oil rich countries like Brunei & Abu Dhabi are different. They may have zero tax or lower taxes.) 

Such massive reduction of tax rates shows huge action by GOI. Have we, the citizens responded! Well, experience shows that there are more sophisticated tax avoidance & tax evasion schemes in operation now. Some of us have not responded positively. At the same time, GOI’s revenue has multiplied. There have been several years when GOI got more tax revenue than their budget estimates. Apart from the fact that our increased GDP has boosted revenue, there remains a fact that more & more people are now paying taxes more honestly. 

Now when some people do not pay the tax, it is either a simple matter of greed or a compulsion because of Indian Government system. 

9.2 GST & VAT:

My knowledge on indirect taxes is limited. However, I am told:

(i) Earlier system of all indirect taxes compelled people to avoid taxes. When tax rates are more than the profit margins, traders & manufacturers are bound to evade/avoid taxes. 

(ii) The new system of VAT has already given good results. More & more businessmen are avoiding illicit trade & paying up indirect taxes. When GST will be introduced all over the country, there will be tremendous benefit for Indian economy.

9.3 Government has also taken steps for making the use of black money difficult. All the avenues of spending substantial black

money are under the eyes of survey department. Hence to some extent the black money use has been curbed. 

9.4 There is now incentive for more & more people to bring back their black money stored abroad. Rupee has stabilised. There are more chances that $ will go down as compared to rupee. And Indian economy offers far better chances for growth & profits than most markets in the world. All together, financial resources in India are increasing with substantial boost to the GDP.

Yet, life is like “Blow hot Blow cold”. (Idiom Definition from dictionary: “If you blow hot and cold on an idea, your attitude and opinion keeps changing; one minute you are for it, the next you are against”.) This is what Maya does. She simultaneously exhibits contrary trends.

10.Hopes belied: 

Before the liberalisation started in the year 1991, Indian economy was extremely regulated. Excessive regulation meant that if any one wanted to do anything in India he had to bribe some one or the other. There were many individuals and institutions that canvassed for deregulation or liberalisation of the Indian economy. All these people hoped that once the economy is liberalised, the cause for bribe & corruption would disappear. Hence there will be considerable reduction in black money.

Statistics:It is said that black money in India accounts for 20 % of GDP. If this is true, then black money generated every year must be around Rs 400,000 crore or $ 80 billion. This is a huge amount, more than the entire budget of the government at the Centre. We have a government that spends about Rs 350,000 crore a year, most of it on itself, and asks for accounts of every paisa. On the other side, we have black money worth Rs 400,000 crore every year, which is just guesswork, and there are no accounts. This money goes into property, which is why real estate prices are so high, and of course five-star hotels. If the government could have all this money, or even a small fraction, there would be no need for revenue or fiscal   deficits , and no need for huge borrowings to make two ends meet. How big is $ 100 billion? It is bigger than you think. It is worth Rs 500,000 crore, which makes it bigger than the central budget. It is more than twice our annual exports. It is equivalent to 30 times what Enron is supposed to have invested on its Dabhol project. It is more than what the US government is expected to pay those who have suffered from the September 11th smash. And, if you must know, it is a fifth of our annual GDP, which is itself a big figure.

Introduction:The CBDT is hopeful of collecting more than Rs 7,000 crore (Rs 70 billion) as income tax area, the target indicated by Finance Minister P Chidambaram for the current financial   year . The board has already collected Rs 3,400 crore (Rs 34 billion) during the first six months of the current fiscal year, compared to Rs 2,700 crore (Rs 27 billion) in the same period a year earlier.Finance Minister P Chidambaram\\\'s Budget speech for 2004-05 shows there were only 27 million taxpayers in the country on the date of the presentation of the Budget. This indicates the tax evasion rampant in the country.The economy keeps growing and so does the deficit, while the revenues do not increase in the same proportion as the economy grows. There could be a number of reasons for the shortfall, which may vary from year to year like recession in the industrial sector or shortfall in agricultural production. But one factor that has been constant for the last five decades is the tax evasion. There are so many loopholes in the tax system that allows

people and organizations to evade taxes with impunity. There are no reliable estimates of the extent of the tax evasion in this country. But some studies show that the size of black money has grown significantly over the past many years If this tax evasion were checked, the Finance Minister would never be faced with shortfall in tax collection and would have a very low fiscal deficit. Therefore, the Finance Minister instead of resorting to increase in tax rates or coming out with amnesty schemes should find other means to increase the revenue collection. One such way is to plug the loopholes, which encourages tax evasion. Most of the tax evasion occurs when transactions are done in cash and never recorded. This has been the experience of many countries and they have come out with measures that discourage cash transactions and encourage recorded transactions. One such mechanism has been the use of debit and credit cards combined with payment through banking mechanism. The Finance Minister should come out with such a provision, which encourages cashless transaction.As a first measure it may be made mandatory that all salaries above Rs 10,000 per month, both in public and in private sectors, be directly credited to individuals\\\' accounts in their respective banks. Secondly, payments above a certain amount may also be made mandatory through debit / credit cards and through cheque or bank drafts. With electronic banking gaining importance, transfers through banking mechanism will become as easy as receiving or making payments by cash. In most of the countries the use of debit and credit cards for making and receiving payments has reached a point that for buying even one small ball pen payment is made through credit / debit card.Similarly, payments for the sale and purchase of immovable property, various kinds of consumer   goods   and   services  beyond a certain stipulated amount should also be made mandatory through banking channels. While doing so, the Finance Minister will not only be plugging one of the biggest loopholes leading to tax evasion but would also reduce the need for ready cash and hence the printing of currency notes on a large scale.The biggest chunk of black money is invested in real estate and gold. The circulation of black money in the housing sector is beyond imagination. Since the house tax is based on the current purchase price only one fourth of the money is paid by cheque and the rest in unaccounted cash. Even an honest buyer of flats / houses is forced to pay in black money if he wants to acquire one.

History:The period 1946-61 was one of the intense creativity. A black or parallel economy emerged both in the wake of the Second World War and the expansion of the economic   activity  in the post-independence period. Incentives were provided through the taxation laws to promote savings and investment; this made the tax laws more complex. Then, there was the need for larger revenues to finance the plans of economic development. Thorough investigations were, therefore, conducted into the structure of taxation not only with a view to widen the base of income tax but also to look for new taxes and to prevent tax evasion and avoidance. The Income-tax administration came under heavy strain due to the increase in the volume and complexity of its work. 

Nature:There are two powerful ethical props for a different view than the one the court has taken.1. It is a plain fact that many high-earning persons evade income tax by ruthlessly exploiting the loopholes in the laws. Black money is the outcome of this practice. And neither the income tax department has mounted an effective campaign to hunt out these tax cheats, nor has the court, any court, felt provoked to order a comprehensive crackdown.2. The widespread ruse of doling out big money to top executives and others by describing it as reimbursement.

Constituent activities of Black Economy:1. Legal activities that are not reported to the tax authorities and the income which goes untaxed and unreported. For instance: it is not illegal to clean someone\\\'s house, to feed people or to drive them. It is, however, illegal to hide the income generated by these activities and not to pay tax on it. In most countries of the world, this is a criminal offence, punishable by years in prison.2. Illegal activities, which needless to say, are also not reported to the state (and, therefore, not taxed).The money generated by these activities is largely held in foreign exchange outside the banking system or smuggled abroad (even through the local banking system).

How is it formed?A parallel or a black market is an illegal structure that is created in response to government intervention, which produces excess supply or demand for a product. When the price of foreign currency is set below the market-clearing rate, an excess demand is usually generated for acquiring foreign currency. The government has the choice of either devaluating the currency, or maintaining strict controls over exchange, such as setting quotas on the purchase of foreign exchange. Such currency controls are designed by governments in order to limit the use of foreign exchange in transactions. This parallel economy, or black market, emerges through the manipulation of the economic forces of supply and demand for both currency and commodities. A black market also emerges when trade and industry create an artificial situation of scarcity or glut, and in the process amass

high returns on their investments by profiteering. As a result of profiteering activity, the black market generates unreported income and wealth, which escape detection by official statistics. Much of the strength of the black market can be attributed to the resale of officially allocated foreign exchange holdings and to the incentive to under invoice and smuggle exports. He argues that an increase in the black market rate, given the official exchange rate, creates an incentive for residents abroad to channel their remittances through the black market. This raises their private receipts in terms of home currency and deprives the central bank of this foreign exchange. Economists studying black market activity in developing countries advocate that it is best to keep the black market premium rate as low as possible. By influencing the determinants of the black market exchange rate, developing counties can keep the black market premium rate low and increase their official foreign exchange currency holdings. 

Effects of black money on Indian Economy: Affects public revenues, Degenerates the investable surplus, Delimits the national productivity, Drains the balance of payments,  Distorts equity and equality concepts of economic distribution.

HAWALA SCAM --- Financing Illegal Trade:What makes the illegal market prosper is the large amount of black money that is easily accessible to traders. Thus money can be transferred to any country of the world through the illegal money market. The existence of a massive black economy consisting of both domestic and foreign currency makes such trade possible. Illegal trade is financed either by high value precious metals like gold and silver or by liquid money through a network of unauthorised moneylenders. In the former case gold is smuggled physically and then converted into the desired currency. However gold smuggling is risky and a preferred mode is through the illegal money market. The uniqueness of this system is that there is no physical transfer of currency. This mechanism referred to as the �hawala� in India, the �hundi� in Bangladesh and the �chit� fund in Sri Lanka operates on the same principles.

Advantages: The black economy has many more important functions: The black economy is a cash economy.  It is liquid and fast.  It increases the velocity of money.  It injects much needed foreign exchange into the economy and inadvertently increases the effective money supply and the resulting money aggregates. In this sense, it defies the dictates of \\\"we know better\\\" institutions such as the IMF. It fosters economic activity and employs people.  It encourages labour mobility and international trade. Black economy, in short, is very positive. With the exception of illegal activities, it does everything that the official economy does � and, usually, more efficiently. The black economy is especially important in times of economic hardships. Countries in transition are a private case of emerging economies, which are a private case of developing countries that are called (in less politically correct times) \\\"Third World Countries\\\". They suffer from all manner of acute economic illnesses. They lose their export markets, they are technologically backward, their unemployment skyrockets, their plant and machinery are dilapidated, their infrastructure decrepit and dysfunctional, they are lethally illiquid, they become immoral societies (obligations not honoured, crime flourishes), their trade deficits and budget deficits balloon and they are conditioned to be dependent on handouts and dictates from various international financial institutions and donor countries.  It enhances exports (and competitiveness through imports), it encourages technology transfers, it employs people, it invests in legitimate businesses (or is practiced by them), it adds to the wealth of the nation (black marketers are big spenders, good consumers and build real estate), it injects liquidity to an otherwise dehydrated market.

Disadvantages: So, what is morally wrong with the black economy? The answer, in brief: It is exploitative. Other parts of the economy, which are not hidden (though would have liked to be), are penalized for their visibility. They pay taxes. Workers in a factory owned by the state or in the government service cannot avoid paying taxes.  The money that the state collects from them is invested, for instance, in infrastructure (roads, phones, electricity) or used to pay for public services (education, defense, policing). The operators of the black economy enjoy these services without paying for them, without bearing the costs and worse: while others bear the costs. This encourages them, in theory to use these resources less efficiently.

And all this might be true in a highly efficient, almost ideal market economy. The emphasis is on the word \\\"market\\\". Unfortunately, we all live in societies, which are regulated by bureaucracies that are controlled (in theory, rarely in practice) by politicians. These elites have a tendency to misuse and to abuse resources and to allocate them in an inefficient manner.

Measures taken by the Government:In a unique drive launched a few days before the presentation of the Union Budget, the CBI has registered 36 cases against 112 government officials and others after search operations across the country in a bid to unearth black money amassed by them. The drive conducted under a team of joint directors of the agency, has reportedly been able to unearth black money amounting to lakhs of rupees, CBI sources said here today. He said simultaneous searches were carried out on 109 official and residential premises of accused or suspected persons. In these cases 21 accused / suspected persons belonged to the Union Bank of India, the Reserve Bank of India, Sikkim Bank, the United Bank of India and private firms located at Mumbai. These cases pertained to cheating, export fraud, abuse of powers and falsification of records resulting in wrongful loss to the banks and public institutions. Cases taken up for investigation were of the Anti-corruption division, the economic offences Wing and the special crimes division.Although the stamp duty department maintains a list of rateable value properties in Mumbai, the main concern is that in most of the cases the rates are much higher than the actual transacted rates for the actual property. However, instead of addressing these irregularities, authorities have increased the stamp duty rates!

It is a well known fact that because of high stamp duty, buyers have been quoting their property much below the actual transacted value. This is mainly because it enables the buyers to save substantial amount on the stamp duty outgo, since stamp duty is charged on the value of the property. This practice of undervaluing property is not ethical and moreover it leads to accumulation of black money in the economy, which is not good. For instance, there are cases where builders / sellers ask up to 40 % of the transacted value of the property as black money. This gives a distorted picture of the real estate price, as there is a huge difference in the transacted price and the rate list maintained by the stamp duty authorities. 

Why the Policies implemented so far are Ineffective?Now the Supreme Court has ordered that dearness, house rent and city compensatory allowances are income and attract tax. Theoretically, the ruling covers only the employees of the government and those of public sector undertakings and the two nationalised insurance companies since the original dispute arose from their petition. But the judgement is so general in nature that every salaried individual receiving any allowance of this nature has to pay tax on it if he or she is not already doing so. It is an old demand of those with a regular income that those payments which are compensatory in nature should be tax-free if the underlying idea is not to be perverted.

Government intends to undertake:The government is likely to announce a scheme to channel black money into a dedicated fund, which could be used for funding the government\\\'s social sector programme. The fund, which may be announced in the Budget for 2005-06, could be modeled on the lines of the Prime Minister\\\'s Relief Fund. Government sources said the revenue department was contemplating various other strategies. One option would be to issue bonds to raise funds for infrastructure and social sectors, which would not yield any returns in the initial few years. An official said a scheme on the lines of the Voluntary Disclosure of Income Scheme 1997, launched during P Chidambaram�s previous stint as finance minister, was ruled out.

Suggestions:All citizens should be obliged to file annual, personal tax returns (universal tax returns, like in the USA). This way, discrepancies between personal tax returns and other information can lead to investigations and discoveries of tax evasion and criminal activities.All citizens should be obliged to file bi-annual declarations of personal wealth and assets (including real estate, vehicles, movables, inventory of business owned or controlled by the individual, financial assets, income from all sources, shares in companies, etc.).All retail outlets and places of business should be required to install � over a period of 3 years � cash registers with \\\"fiscal brains\\\". These are cash registers with an embedded chip. The chips are built to save a trail (detailed list) of all the transactions in the place of business. Tax inspectors can pick the chip at random, download its contents to the tax computers and use it to issue tax assessments. The information thus gathered can also be crossed with and compared to information from other sources. This can be done only after the full implementation of the recommendations in the section titled \\\"Databases and Information Gathering\\\". (While it increases business costs � it is not likely to prevent cash or otherwise unreported transactions).All registrars should be computerized: land, real estate, motor vehicles, share ownership, companies registration, tax filings, import and export related documentation (customs), VAT, permits and licenses, records of flights abroad, ownership of mobile phones and so on. The tax authorities and the Public Revenue Office (PRO) should have unrestricted access to ALL the registers of all the registrars. Thus, they should be able to find tax evasion easily (ask for sources of wealth- how did you build this house and buy a new car if you are

earning 500 DM monthly according to your tax return?) The computer system should constantly compare VAT records and records & statements related to other taxes in order to find discrepancies between them. Gradually, submissions of financial statements, tax returns and wealth declarations should be computerized and done even on a monthly basis (for instance, VAT statements).Tax inspectors and customs officials should receive police powers and much higher salaries (including a percentage of tax revenues). The salaries of all tax inspectors � regardless of their original place of employment � should be equalized (of course, taking into consideration tenure, education, rank, etc.) Judges should be trained and educated in matters pertaining to the informal economy. Special courts for taxes, for instance, are a good idea. Judges have to be trained in tax laws and the state tax authorities should provide BINDING opinions to entrepreneurs, businessmen and investors regarding the tax implications of their decisions and actionsAll contracts between firms should be registered in the courts and stamped to become valid. Contracts thus evidenced should be accompanied by the registration documents (registrar extract) of the contracting parties. Many \\\"firms\\\" doing business in Macedonia are not even legally registered. A special inter-ministerial committee with MINISTER-MEMBERS and headed by the PM should be established. Its roles: to reduce bureaucracy, to suggest appropriate new legislation and to investigate corruption.Bureaucracy should be pared down drastically. The more permits, licenses, tolls, fees and documents needed � the more corruption. Less power to state officials means less corruption. The One Stop Shop concept should be implemented everywhere.To impose a VAT system. VAT is one the best instruments against the informal economy because it tracks the production process throughout a chain of value added suppliers and manufacturers. The Tax code needs to be simplified. Emphasis should be placed on VAT, consumption taxes, customs and excise taxes, fees and duties. To ensure progress, the government should directly compensate the poor for the excess relative burden.Special tax courts should be established within the existing courts. They should be staffed by specifically trained judges. Their decisions should be appealed to the Supreme Court. They should render their decisions within 180 days. All other juridical and appeal instances should be cancelled � except for an appeal instance within the PRO. Thus, the process of tax collection should be greatly simplified. A tax assessment should be issued by the tax authorities, appealed internally (within the PRO), taken to a tax court session (by a plaintiff) and, finally, appealed to the Supreme Court (in very rare cases).White Sugar is often imported as brown sugar. One way to prevent this is to place sugar on the list of LB (import license required) list, to limit the effective period of each license issued, to connect each transaction of imported brown sugar to a transaction of export, to apply the world price of sugar to customs duties, to demand payment of customs duties in the first customs terminal, to demand a forwarder\\\'s as well as an importer\\\'s guarantee and to require a certificate of origin. The same goes for Cooking Oil (which � when it is imported in a package � is often declared as some other good).Simplicity in tax laws is certainly a desirable objective. US tax laws are 5 times the size of Indian tax laws, in terms of the number of clauses! Yet, the US tax laws are considered simpler than Indian tax laws. There is only one reason - constant change, and lack of continuity, in Indian tax laws, creating uncertainty on the applicability of different tax provisions. Add to that, the multiplicity of inspectors, the voluminous records to be maintained, the limited role of computerisation, the vagueness in wordings of rules and regulations, leading to subjective interpretation, and, thereby, the uncertainties with respect to compliance - and you have a level of complexity beyond what rocket scientists ever encounter!

Simplicity  Stability and Continuity  Certainty  Reasonable tax rates  Ease of Compliance 

Unfortunately, in the past, for checking evasion, stress had mostly been on legislative measures, forgetting that equal importance is to be given to administrative aspects. In the discussion to follow, some suggestions for checking evasion, through legislation, and for improving compliance to tax laws are being mentioned. As indicated earlier, the problems need to be tackled in two ways -- by legislation and taking effective administrative measures. Other measures for checking tax evasion through legislation could be:

Taxing big and prosperous agriculturists\\\' incomes and wealth. Introducing donee-based gift tax. Permitting tax officials to have power of door-to-door survey. Claims for losses / expenses relating to undisclosed or illegal incomes should not be recognised for tax assessments while taxing incomes from such sources.

In countries like Belgium, Greece and France, there is provision for confiscation of personal rights like arms or driving license of persons found guilty of dealing with black money or resorting to tax evasion. Similar law should be made in India too. Such persons should also be debarred from holding any elective offices, including directorships in companies.

More emphasis must be laid on these aspects instead of floating amnesty schemes and issuing bearer bonds. It needs to be borne in mind that such schemes merely tackle that too to a very limited extent, the problem relating to \\\'stock\\\' concept in black money and do not provide solutions for checking the onslaught of black money generation -- the flop concept.

Among administrative aspects, strict measures can only create impact. Some suggestions in this context are:

Tax laws should permit wide publicity through media regarding persons found guilty of tax evasion.  Social conscience needs to be aroused amongst people against tax evasion, for attaching social stigma for tax evaders and to work as sentinels for identifying black marketers and tax dodgers. The most important measure for checking evasion is to establish credibility of the government regarding its own integrity before exhorting persons to pay their taxes correctly. 

Some other measures, of an administrative nature, could be: Disentitling tax evaders / defaulters to avail of the facility of payment of taxes in the installments and getting credit facilities from banks. Streamlining procedure for speedy determination of tax disputes. Special courts for this need to be set up. Paying special attention towards training for detection of tax frauds, evasion and black money generation, including deputation of IT officers to other countries for training to tackle cross border tax evasion. Providing adequate security to tax officials, conducting search and surveys. Improving morale of the tax department officials by providing them adequate infrastructure and other facilities, by recognition of their merit and giving them the place that they deserve in the overall government set up.

Conclusion:There had been umpteen talks and voluntary disclosure schemes in the past for checking evasion and black money, but no perceivable results have come. Rather, the quantum of black money in circulation has increased substantially in volume. There is one sure medicine: eliminate the population and both unemployment and inflation will be eliminated. So long as cash transactions continue to be made, tax evasion will be there and black money will continue to be generated.