The government today proposed a clutch of measures to unearth black money such as having fast-track courts, mandatory reporting of high-value overseas deals and encouraging the use of credit and debit cards but virtually ruled out tax immunity schemes.
The white paper on black money tabled by finance minister Pranab Mukherjee in the Lok Sabha favoured a strategic mix of four pillars that comprises incentives for voluntary compliance, reforms in vulnerable sectors of the economy, creating effective credible deterrence and supportive measures.
The report does not give out any names of black money holders or estimates of such funds either in the country or outside but refers to estimates made earlier by various domestic and foreign entities.
Improving the reporting and monitoring systems to track bullion and jewellery transactions and simple reporting systems in real estate deals to facilitate the development of a nationwide database were also urgently proposed.
Citing the Vodafone case as an instance of the misuse of the corporate structure to avoid the payment of taxes, the white paper justified the recent amendment to the income tax act to check the avoidance of tax by routing investments through tax havens.
Referring to the demands for the introduction of a voluntary disclosure scheme to bring black money stashed abroad, the document said such a measure could be a one-time option. However, the government may not implement the scheme as this will be a disincentive to honest tax payers.
The paper also favoured the setting up of Lokpals and Lokayuktas to tackle the menace of illicit money.
However, the Lokpal bill is stuck in Parliament and has been referred to the standing committee on finance.
The government has also deferred the implementation of the General Anti Avoidance Rules (GAAR), which seeks to plug loopholes for fund flows into India. GAAR was deferred as markets tanked after it was announced and several industry chambers sought its postponement.
The Opposition, led by the BJP, has been accusing the government of going slow on the black money probe.
The white paper said that illicit cash was being re-invested by Indians through participatory notes in the local stock market and through global depository receipts issued by some Indian companies.
Indian residents are also carrying out substantial money transactions through foreign entities, with established businesses in India, which include banks, financial institutions and fund transfer entities.
In the absence of any system to monitor such international money transfer through global financial entities in India, the paper has suggested that "all overseas transactions above a threshold should be reported to the authorities".
This is in tune with the Patriot Act of the US under which global financial transactions above a threshold by or with Americans get reported to the law enforcement agencies such as the IRS and the FBI, said industry experts.
The document has also supported coaxing tax havens such as Switzerland, Luxembourg and the Bahamas into helping the Indian government to track undeclared money abroad.
"Reforming financial and real estate sectors would help in reducing generation of black money in the long term as freeing of gold imports had helped in checking smuggling," said Rajkumar Dhoot, president of Assocham.
According to the white paper, black money has been defined as assets or resources that have neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession.
Investment in property is a common means of parking unaccounted money. To curb this, the paper has suggested that the government should bring in a provision of deducting tax at source on real estate transactions and a 5 per cent uniform property tax across the country. Officials said a consensus had to be built with the states.
The document has also proposed measures to prevent the misuse of "off-market" and "dabba-trading", or trading outside the recognised stock exchanges. It suggested losses in off-market share transactions be set off only against profits derived from such transactions.
