May 30, 2014

What Modi Must Do Now - Part 2

In my previous editorial, I had written the first of a two-part editorial on what must Modi do, now that he's in power. In that editorial, I had suggested that Modi must first focus on transforming the judiciary, improving education and healthcare services, and initiating employment generation schemes and slum-removal schemes to give people dignified existence. Continuing with that, here is the second part of my editorial on what else must Modi do:

Legalizing Black Money
I have suggested this in the past too; and shall suggest it again verbatim – we should legalize all the black money stashed abroad by structuring a consolidated tax payment of 10% on the black money amount. To sugarcoat the offer, even this 10% could be taken in five equal annual installments of 2%! But this has to be with two key riders! The first one is that the government must ensure that it takes persuasive and decisive action to recover the black money stashed abroad from day one. In this, the government should also ensure that all the black money recovered after one year of the grace period will be nationalized lock, stock and barrel. The second rider is that the government must commit that in the future, there would be structural and financial firewalls to ensure that stashing black money abroad becomes absolutely impossible. At the same time, if there is a functional judiciary, punishing black money holders efficiently and quickly – and thus dissuading future black money transactions – will be an easy task.

Let me put all this in context in the background of the government last week setting up an SIT (Special Investigation Team) to investigate various black money cases, on the orders of the Supreme Court. Some of the current estimates of black money abroad are as high as Rs.75,00,000 crores. If we could legalize all this using the framework suggested above, look at the possibilities – a minimum 10% (or Rs.7,50,000 crore gross) could come into the government's kitty in the next five years (that is, Rs.1,50,000 crore per year); this apart from the fact that the principal bulk of black money would also come back into India. And all this would provide a huge support for the investments required to put into action the allocations I had suggested in my previous editorial, and for other crucial government projects.

Eliminating exemptions and simplifying the tax regime
The Direct Tax Code (DTC) and the Goods & Services Tax (GST) systems had been touted for quite some time by the previous government; but frankly, nothing much happened. While the DTC Bill 2010 got referred to a standing committee – and languished sine die – the revised DTC has been released for comments by the previous government only in April this year. The new government too has given indications that it is not going to follow up on getting the DTC in order and in action. That is disappointing. A similar fate seems to be awaiting GST, which is languishing amidst bickering between various states. Even though I'm not a finance specialist, if I were to go by what my colleagues (who are finance professionals) say, implementing these revised systems could simplify the lives of both corporations and millions of tax payers, doing away with (or at the very least significantly improving) the jurassic income tax system that continues till date. A starting point for all this could be to introduce a truly 'saral' system of taxes than just provide a namesake Saral-II form for lip service, which is most frustrating for those who actually pay the taxes. Another positive and significant step could also be passing a direction that taxpayers with income up to Rs 5 lakh need not be questioned at all by the Income Tax department. What additional tax revenues can you get from the stressed middle class Indian whose income is anyway subject to TDS (tax deducted at source)?



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