The opposition must step back
The goods and services tax can check black money. Don't delay its roll-out.india Updated: Dec 18, 2011 23:01 IST
In a parliamentary debate on black money, finance minister Pranab Mukherjee has admitted that his ministry has received "36,000 bits of information" and investigators are working on leads to track down Indian wealth stashed abroad. The taxman, newly armed with information-sharing agreements with a clutch of countries, is beginning to tap data that might net some big fish. We are part of a global crackdown on black money that has led India to review its treaties with 79 countries, including Switzerland. But the bilateral agreements are categoric: tax information will be shared only from the new treaty dates and there can be no fishing expedition, as sought by BJP leader LK Advani. The taxman finally has some sort of a deterrent against money stashed abroad, it would be a shame if the information source dries up because of political witch hunts. For the moment, Indian parliamentarians ought to draw comfort from Mr Mukherjee's assurance that none of their names figure in the lists of people operating offshore accounts.
Instead, the opposition should appreciate the government's attempts to get a handle on the size of India's parallel economy. The finance ministry has commissioned a report by independent think tanks on unaccounted income and wealth held within and outside India. The study will also suggest methods to gouge out illicit money. Mr Mukherjee intends to publish a white paper once they turn in their findings. Economists commissioned to come up with an estimate of how much of Indians' income goes unreported and where it ends up must devise a hypothesis and test it on data that is just not there. They will most probably come up with something that pits two sets of claims against each other and work on the discrepancies. For example, what India says it trades with the world and what the world says India trades with it, or what sellers say they have sold and what buyers say they have bought. If we do get a fix on the black money generated from legitimate economic activity, a large chunk of the underground economy will lay exposed.
Very few measures can trap money dodging taxes as efficiently - and on as big a scale - as the uniform goods and services tax. The tax eliminates the cascading incidence of central, state and local levies, and, therefore, reduces the incentive to under-report income. State governments will lose scope for tax arbitrage, which acts as another trigger for evasion. Most important, however, the system is self-policing by taxing only the added value. Since input credits have to be squared off against output credits, tax leakage is plugged by design, not by monitoring. An opposition hell-bent on exposing black money would move beyond mere rhetoric if it helped Mr Mukherjee implement the new tax.