THE BIGGEST problem with the Indian economy is the vibrant and pervasive black economy that exists in the system. If that black money is brought back into the system, it would improve the already booming economy much more in days to come. Just think of the cascading effects it will have on the system. For example, a person brings Rs 10 lakhs into the white economy or the legal economy. Next year, that Rs 10 lakhs would generate some returns, taxes would accrue, services would grow and the ’Laksmi’ would become legally ’chalayman’. It’s a old saying in Hindi: Lakshmi should always be moving.
Now what are the possible ways of bringing black money into white or wiping out black money? One way was as devised by our finance minister way back in 1997, when he introduced the Voluntary Disclosure of Income Scheme (VDIS). The scheme did convert lots of black money into white, but in a way, it encouraged the black money generation and was a major damper on all those honest citizens who paid their income tax all those years. They started to think that they were indeed fools to have paid income taxes correctly. This came down heavily on the salaried class who had no option but to pay taxes and have no means to conceal their income. Of course, there are some employers who pay in cash/black as well. One more lacunae with the scheme that it also allowed people to convert their silver and gold into white! This was a big mistake because as everyone knows, lots of people showed ficticious balances of gold and silver and ended up paying three to four per cent as penalty or charge of converting black into white.
If that VDIS 1997, was not a good scheme because of reasons mentioned above, then it is a good way to convert black into white money and that too without antagonising the honest salaried people? I have one suggestion here:
Cancel all currency notes having face value of Rs 500 and Rs 1,000 and issue fresh notes having better features that would be much more difficult to copy. Ask everyone to deposit these notes in banks. Give a time period for depositing the cash, say a week. Now the government would ask for proof of the money deposited and if given a reasonable answer, no action will be taken and if that money is found to be black in origin, the government would deduct 50 per cent as one time black tax. This way for the citizens, atleast they are able to salvage 50 per cent of the money, which would otherwise go down the drain and for the government, it would collect lots of revenue as tax and lots of money would come from black economy to white economy. After a week, the banks would stop taking the old currency notes, so people would have no option, but to surrender.
Honest people would not have any problem with such a scheme and black economy people would not have any option left. Maybe they would donate the money to Mandir/Dharamshala/Masjid/Church/Gurudwara etc and such money could be deposited into specified government accounts by paying say 75 per cent tax. Mandirs etc would be a beneficiary as they would get 25 per cent money as donation, government would be a beneficiary as they would have removed huge black money from the system.
One added advantage: This would also solve the huge counterfeit notes’ problems that is widely prevalent in India. Now the govt should reduce tax structure as well and should raise the income tax limits to say Rs 5,00,000 as tax free income and just 10 per cent tax on income upto Rs 15 lakhs and 20 per cent tax upto Rs 50 lakhs income. No one will have a strong reason to hide income as such. This would do wonders for the country as such.
Is our finance minister listening? Only thing is that it should be done suddenly. All the best.