Free Reports

Mr Jaitley, Before Striking a Deal with Black Money Wallahs, Let's Try Selling ITC

Mar 4, 2016


A perhaps apocryphal story goes that photographers and journalists working for this entertainment supplement of a newspaper would take money and put in news items and photographs of celebrities who were willing to pay.

Of course, the management was smart enough to soon figure this out. Further, they thought, if the journalists could make money, why not the company.

Hence, thereon you could simply go to their office, pay them, get a receipt and get stuff published in the entertainment supplement, for a certain price. What was essentially a bribe, became a smart business model

The government of India has done something similar by coming up with the black money compliance window. Up until, the black money wallahs may have had to pay off the tax department to make sure they don't come after them.

The government is now telling the black money wallahs instead of bribing my employees, pay us 15% extra (7.5% surcharge, 7.5% penalty over and above a 30% tax) and we won't come after you. The black money wallahs will have total immunity from prosecution as well.

As finance minister Arun Jaitley said during the course of the budget speech: "I propose a limited period Compliance Window for domestic taxpayers to declare undisclosed income or income represented in the form of any asset and clear up their past tax transgressions by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution."

What this essentially means is that if you have black money and are willing to pay 15% extra to the government, the law of the land won't apply to you. Also, look at it this way, if you miss an advance tax payment, you pay a fine at the rate of 1% per month. But you pay 15% extra on your black money on which you have never paid tax and the government will look the other way.

As philosopher Michael Sandel writes in What Money Can't Buy-The Moral Limits of Markets: "Why worry that we are moving toward a society in which everything is up for sale?...In a society where everything is for sale, life is harder for those with modest means. The more money can buy, the more affluence (or the lack of it) matters."

The simple explanation for why the government is doing this is that they need money to match the expenditure that they have planned during the course of 2016-2017. So it is about money. Having said that there are other ways of earning it as well.

Take the case of ITC. As I have pointed out in the past, the government owns 11.19% of this company, which primarily makes money through selling cigarettes. The stake is owned through the Specified Undertaking of the Unit Trust of India. Why does the government continue to own this stake?

Over and above this, the Life Insurance Corporation (LIC) of India owns a 14.41% stake in the company. Effectively, the government owns one-fourth of ITC. Hence, this stake can easily be strategically sold at a price, which is better than the prevailing market.

The 11% stake through SUUTI would be worth Rs 28,471 crore as of yesterday. The government also owns stakes in L&T and Axis Bank through SUUTI. Why is the government holding on to these shares?

Is the government likely to sell these shares in 2016-2017? It is unlikely. Why do I say that? In the budget, the government has given an estimate of the amount of money it targets to earn during the course of this year, through disinvestment. It plans to raise Rs 56,500 crore through disinvestment. Of this Rs 36,000 crore is expected to be earned through the disinvestment of shares in companies that it owns.Rs 20,500 crore is expected to come in through sale of shares in companies in which the government owns minor stakes. The government's stake in ITC is worth much more than that. Hence, it is more than likely that the government will continue to own ITC during the course of this year as well. At the same time, it is ready to pardon people who have black money if they pay 15% extra to the government. It is also ready to tax 60% of the maturity corpus of Employees' Provident Fund of private sector employees.

At the same time, it continues to finance loss making public sector enterprises. The Economic Survey released before the budget had a very interesting data point. Up to March 2014, the accumulated losses of public sector enterprises stood at a whopping Rs 1.04 lakh crore. The government continues to finance these loss making firms and in the process has to strike a deal with black money wallahs to ensure that it has enough money.

Further, these loss making public sector enterprises are sitting on a huge amount of land and there has almost no effort to monetise this land and make some money in the process. The latest Economic Survey does recommend the sale of land of public sector enterprises. Let's see if that happens.

The point being that the Modi government could have done several things to earn money before getting into striking deals with those who have black money.

Meanwhile, the government will continue running anti-tobacco advertisements. Funny country we are.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "Mr Jaitley, Before Striking a Deal with Black Money Wallahs, Let's Try Selling ITC". Click here!

7 Responses to "Mr Jaitley, Before Striking a Deal with Black Money Wallahs, Let's Try Selling ITC"


Mar 13, 2016

I am not getting into ethical part of 45% collection but Government has no machinery are systems to catch the Black Money Hoarders or as indicated in write up, money goes as a bribes to safeguard those amounts from the machinery. Most of it goes for greasing and getting favorable Government decisions and for election funding and to keep in power like for buying other party members or for real estate deals or betting to mention a few.

I am skeptical about how many will come forward to declare and pay 45% tax? Even some may do if they need white money for transacting, We have to wait and see.


Sarat Palat

Mar 5, 2016

Dear Mr. Vivek, why the Govt. need to sell the stakes in ITC, Axis Bank and L&T? which is laying golden eggs for the Govt. The Govt. need to concentrate on loss making PSU's.


AB Pereira

Mar 4, 2016

You are spot on, Vivek.
On a related issue, can your team also investigate (and report to your readers) how much money did the Govt owned PSUs (mainly, the insurance companies LIC, UTI, PSU banks and 4 GICs) invest post budget in the stock markets? I have a belief that this 'heavy' 'rally' is orchestrated by them, just to bring gullible small investors back to the markets, fraudulently. Because, I dont think the FIIs are much convinced about the measures taken, despite a promise to head towards 3.5% fiscal deficit - as explained by Vivek in earlier pieces, it is not likely to achieve the same.


Balakrishnan R

Mar 4, 2016

Dear Mr. Vivek,
It is not hard to reduce black money. If the government makes a law that nothing should be sold without a computerized bill and Commercial Tax Officials strictly follow this (without making money for themselves), the black money will reduce to a major extent.


G V Ramana

Mar 4, 2016

I have read the Vivek's article on latest Black Money scheme of the government, but I am unable to fully agree with his point of view. Black Money is a big problem that defies any solution. This is because people somehow think that nothing will happen to status quo and that they could continue to hold their money and assets outside the 'white' system. They also keep justifying to themselves in a thousand ways, why they need not pay tax. For any government, maximizing its tax collections is important to make its ends meet. Getting taxes out of such black money while bringing such money into the mainstream will have obvious dual advantages. We have seen successive governments try many tricks to elicit this tax and money, but with little success. In my opinion, this is a good gamble by the Finance Minister because he is NOT seeking too much of a cut from such declared assets. This is one of the lowest taxes on the Black Money ever and that too with an assurance of immunity from prosecution. I would like to see a huge response to this move. But human greed being what it is, I doubt so. It is not okay to make comparisons with normal tax payers and question the ethics of making concessions to such 'crooks' who are hoarding wealth. But what is the alternative? keeping the status quo and letting continue with their ways? Ignoring, in my view is a bigger crime. But the fact is there is no 'ethical' solution to many issues. That is why we have 'political' leaders and not 'saints' ruling us. Good Politics will any day return more than good ethics in some complicated matters.


Girish Patkar

Mar 4, 2016

Dear Vivek,

The Finance Ministry is aware of all divestment opportunities in ITC, L&T etc. The Government is also aware that they cam privatize Air India, MTNL etc. Therefore, i think We should come up with suggestions which are " out of the box ".

How about about charging Re 1 on ever cheque which goes into clearing ?




Mar 4, 2016

It is senseless to advice f m .where you were before they came out with scheme. Now write how to make this scheme success so that money comes back to system and stops damaging system. do you observe working of par lament?

Equitymaster requests your view! Post a comment on "Mr Jaitley, Before Striking a Deal with Black Money Wallahs, Let's Try Selling ITC". Click here!