Indian black money

Posted on February 24, 2012. Filed under: Uncategorized |

Black money refers to funds earned on the black market, on which income and other taxes has not been paid. The total amount of black money deposited in foreign banks by Indians is unknown, but one estimate by Professor R Vaidyanathan at Indian Institutes of Management estimated the total at over  7,280,000 Crores (US$1.5 trillion).

Black money in Swiss banks

While official numbers are not available, Swiss banking officials have said that the largest depositors of illegal foreign money in Switzerland are Indian.

In August 2010, the government revised the Double Taxation Avoidance Agreement to provide means for investigations of black money in Swiss banks. This revision, expected to become active by January 2012, will allow the government to make inquiries of Swiss banks in cases where they have specific information about possible black money being stored in Switzerland.

In 2011, the Indian government received the names of 782 Indians who had black money saved in HSBC. As of December, 2011, the Finance Ministry has refused to reveal the names, though they did confirm that no current MPs are on the list. In response to demands from the BJP opposition party for the release of the information, the government announced on December 15 that, while it would not publish the names, it would publish a white paper about the HSBC information.

In Feb 2012, CBI director A P Singh speaking at the inauguration of first Interpol global programme on anti-corruption and asset recovery said: “It is estimated that around 500 billion dollars of illegal money belonging to Indians is deposited in tax havens abroad. Largest depositors in Swiss Banks are also reported to be Indians”. In a hint at scams involving ministers, Singh said: “I am prompted to recall a famous verse from ancient Indian scriptures, which says – यथा राजा तथा प्रजा. In other words, if the King is immoral so would be his subjects” [5][6]

Court cases

Supreme Court on Black Money

In January 2011 the Supreme Court of India asked why the names of those who have stashed money in the Liechtenstein Bank have not been disclosed.The court argued that the government should be more forthcoming in releasing all available information on what it called a “mind-boggling” amount of money that is believed to be held illegally in foreign banks.

Hasan Ali Case

In April 2011, Hasan Ali Khan was arrested by Enforcement Directorate on charges of stashing over 36,000 crore in foreign banks. ED lawyers said Khan had financed international arms dealer Adnan Khashoggi on several occasions.

Public Protests and Government’s response

Further information: 2011 Indian anti-corruption movement and Corruption in India

Government Committee on Black money

After a a series of ongoing demonstrations and protests across India, the government appointed a high-level committee in June 2011 to study the generation and curbing of black money. The committee finalized its draft report on Jan 30, 2012. Its key recommendations were:

  1. The two major national parties (an apparent reference to CongressBJP) claim to have incomes of merely Rs 500 crore and Rs 200 crore. But this isn’t “even a fraction” of their expenses. These parties spend between Rs 10,000 crore and Rs 15,000 crore annually on election expenses alone.
  2. Change maximum punishment under Prevention of Corruption Act from the present 3, 5 and 7 years to 2, 7 and 10 years rigorous imprisonment.
  3. Taxation is a highly specialized subject. Based on domain knowledge, set up all-India judicial service and a National Tax Tribunal.
  4. Just as the USA Patriot Act under which global financial transactions above a threshold limit (by or with Americans) get reported to law enforcement agencies, India should insist on entities operating in India to report all global financial transactions above a threshold limit.

Tax Information Exchange Agreements

To curb black money, India has signed TIEA with 10 countries – BahamasBermuda, the British Virgin islands, the Isle of Man, the Cayman Island, the British island of JerseyMonaco,St. Kitts and NevisArgentina and the Marshal Islands – where money is believed to have been stashed away.

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