»The Daily Reckoning by Bill Borner

The black money recovery skills of IT dept are nothing to write home about
26 MAY 2015

- By Vivek Kaul

Vivek Kaul
The finance minister Arun Jaitley spoke to income tax officials yesterday. News-reports suggest that he told them: "You have the responsibility to recover every rupee which is due to the government...A tax is either payable or not payable, if it is not payable, then no attempt has to be made to recover it, but if it is payable, then there is no scope for any collateral consideration why it must not be recovered for the government."

The statement goes totally against the data on the total amount of black money that the Income Tax department has managed to recover over the years. Black money is essentially money which has been earned but on which taxes have not been paid.

The ministry of finance 2012 white paper on black money defines black money as: "any income on which the taxes imposed by government or public authorities have not been paid."

The wealth that has been accumulated in this way "may consist of income generated from legitimate activities or activities which are illegitimate per se, like smuggling, illicit trade in banned substances, counterfeit currency, arms trafficking, terrorism, and corruption," the white paper goes on to suggest.

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Of course this wealth that has been accumulated through tax evasion has "neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession."

Getting back to Jaitley's statement, the Annual Report of the ministry of finance throws up some interesting data in this regard. As the report for the last financial year points out: "During the financial year 2014-15 (upto 30.11.2014), 2068 (provisional) search warrants were executed leading to the seizure of assets worth Rs 538.23 Crore (provisional). During the financial year (upto 30.11.2014), 1174 surveys (provisional) were conducted which yielded a disclosure of undisclosed income of Rs4673.11 Crore (provisional)."

Now how does this number compare to the total amount of black money within the country? Jaitley had told the Rajya Sabha that the previous government had asked three institutes, the National Institute of Public Finance and Policy (NIPFP), National Council of Applied Economic Research (NCAER) and National Institute of Financial Management (NIFM), to make an estimate of the black money within India and that which had left the shores. "Reports received from these institutes are under examination of the government," he had told the Rajya Sabha.

In fact, none of these reports are currently in the public domain. Nevertheless, The Hindu newspaper had accessed the NIPFP report in August 2014. The NIPFP puts the size of the black money economy at around 75% of the gross domestic product (GDP).

What this clearly tells us is that the black money recovered by the Income Tax department in comparison to the total size of the black money economy in the country is not even peanuts. Having said that, I don't think it is fair to compare the two numbers given that the Income Tax department simply does not have enough resources (or incentives for that matter) to go after the massive amount of black money in this country.

Nevertheless, there is another comparison that can be made. How has the performance of the department been over the years, is a question worth asking. As the annual report of the ministry of finance for the year 2013-2014 points out: "During the financial year 2013-14 (upto December, 2013), 3069 (provisional) search warrants were executed leading to the seizure of assets worth Rs 559.04 Crore (provisional). During the financial year (upto December, 2013), 3263 surveys (provisional) were conducted which yielded a disclosure of undisclosed income of Rs 6968.82 Crore (provisional)."

So, the Income Tax department performed better when it came to seizing assets and identifying undisclosed income in 2013-2014 than it did in 2014-2015. In 2013-2014 it seized assets worth Rs 559.04 crore. In comparison it managed to seize assets worth only Rs 538.23 crore in 2014-2015. It identified a total undisclosed income of Rs 6989.82 crore in 2013-2014. This number fell to Rs 4673.11 crore in 2013-2014.

How was the performance of the Income Tax department in the years prior to these two financial years? The accompanying table shows that clearly:

Financial year Seized assets (in Rs crore) Undisclosed income (in Rs crore)
2014-2015 532.23 4,673.11
2013-2014 559.04 6,989.82
2012-2013 450.18 8,254.41
2011-2012 Data not available Data not available
2010-2011 716.66 2,700.59
2009-2010 602.34 1,832.00
Source: Annual reports, ministry of finance

The above table makes for a very interesting read. The value of seized assets was significantly higher in the 2009-2010 and 2010-2011. The undisclosed income identified peaked in 2012-2013 and then fell dramatically. What this clearly tells us is that the record of the Income Tax department in going after black money over the last few years has been very weak.

One possible explanation for this is the fact that corruption in the second term of the United Progressive Alliance peaked, the Income Tax department stopped going after people with a serious amount of black money and i has still not managed to get out of it.

While we may keep thinking of reasons, what this data clearly tells us is that Jaitley was being overtly optimistic regarding the black money recovery skills of the Income Tax department. And that clearly is not good news for all the black money recovery plans that the government has.

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