India’s tax inspectors sniff out black money

Press, 30 December 1985, Page 20

India’s tax inspectors sniff out black money

NZPA-Reuter Bombay

Taxmen have descended on India’s Hollywood homes and company boardrooms in a highly-publicised blitz on the country’s thriving black economy. Busloads of inspectors this month raided plush houses in Bombay’s Malabar Hill, the Beverly Hills of the Indian film capital. They were looking for part of the hidden wealth which makes up what is probably the biggest untaxed or “black” economy in the world. A few weeks earlier the revenue men sent a shudder through the business community by arresting one of India’s top textile millionaires on tax evasion charges. The headline-grabbing raids and arrest were the most important yet in a drive launched by the Government to recover millions of dollars in lost taxes. The crackdown has swelled revenue flowing into State coffers and boosted the image of the Prime Minister, Mr Gandhi, and his Finance Minister, V. P. Singh, who have both been dubbed “Mr Clean” by the press. Barely a day passes without some announcement of how much of the estimated 554.87 billion of undeclared money has found its way into the hands of the taxman.

The yield from direct taxes rose 25 per cent to $732 million between April

and October compared with the same period last year, Mr Singh said. The crackdown had also netted 33 per cent more in customs duty and 15 per cent more in excise duty, he said. Since he lowered income tax rates more people had started paying taxes rather than risk detection, Mr Singh said. The increases are impressive in percentage terms and have earned Directorate of Revenue Intelligence officials some pats on the back But sceptics say the actual amounts are tiny considering the sheer volume of black wealth tied up in real estate, gold, jewellery, the stock market, and smuggling. “The raids and other measures are bringing in money,” said one Bombay businessman who asked not to be named. “But let’s not kid ourselves. They have hardly made a dent in the black economy.” That is no surprise to several local economists who see India’s bloated bureaucracy generating the very black money which oils the wheels of business and administration.

The economy is largely centrally-planned, with the administration enjoying enormous power through the issuing of licences to import or manufacture goods. Perennial shortages, domestic price controls and high import tariffs have spawned an unending

stream of black cash and boosted smuggling. Smuggled consumer goods such as video recorders and television sets, which are often cheaper and of better quality than those made locally, fetch enormous prices. Stallholders in this bustling seaport openly display the latest in smuggled Japanese electronic wizardry. Nearly every sector of economic life is affected. Economists estimate that more than a billion dollars worth of textiles and manmade fibres alone slip illegally into India every year.

“It is a pervasive regime of shortages which sets a premium on everything from a telephone to steel quotas,” said the “Financial Express” newspaper in a recent editorial.

The hotel industry and India’s entertainment industry which produced about 900 movies last year are popularly believed to thrive on black money. A Government-commis-sioned report said in July that black money accounted for about one fifth of the entire output of goods and services produced by India’s 750 million people. It was destabilising monetary policy and its “pernicious effects” now extended to politics, the Administration and social values, it said.

“Matters have worsened considerably, t especially with the reported growth of

political fund-raising i through Government con- . tracts,” the report said. Businessmen admit privately that the buying of political patronage or favours has long been a feature of Indian commercial life. But the Gandhi Administration, which won elections a year ago on a platform of clean and efficient Govern- i J; ment, seems undaunted. 1 : “We will go after the big •» fish. New laws will be en- 4 j acted and there will be no j let-up in our drive against economic offenders,” Mr” Singh said when launching 'I the crackdown. He has promised special I j courts to try black money >• i cases and has given officials r i powers to cany out “door- i> to-door surveys” to check 4 s whether a person’s posses- < sions square with his tax ; returns. ' He also plans an overhaul of the entire tax system in e an attempt to dismantle the very machinery which gen- .* erates black money. i :>