Home > Liberation Main Page > Index Page February 1998 > ARTICLE

VDIS 1997
Amnesty to the Corrupt

There could be no better largesse for the corrupt in times of liberalisation and globalisation — when money-making through secondary economic activity has come to dominate. VDIS provided just that. And if you thought that Chidambaram’s Rs.28 crore advertisment blitzkreig actually threatened the bourgeoisie to change the colour of their money, you are way off the mark.

But first, to settle Chidambaram’s claim of a record haul. By midnight of 31 December, Chidambaram claimed his team of income tax (IT) officials had got Rs.33,000 crores to turn white. It is claimed that the resultant Rs.10,500 crore of revenue netted is a record haul. In real terms, keeping in mind the changing value of the rupee and as calculated by some economists as a fraction of the contemporary GNPs, VDIS figures fifth among all amnesty schemes netting only 0.79% of the GNP while the biggest, the amnesty scheme of 1985, was way ahead with 4.63%. His claim that the yield was much above expectation — so as to suggest that the tax-evader’s response was overwhelming to his threat to come clean — is also falacious as there was no target set nor was any credit provided for this collection in his budget calculations.

In one of his explicit pronouncements, Chidambaram claimed that broadening the tax-net through VDIS was more vital than how much it could net. Of the 4,66,031 respondents from VDIS it will be foolish to believe that many were not part of the 12-million who form the tax-net. Most of those in the tax-net were grossly under-reporting their incomes and with this amnesty they could change the colour of their money at a lower rate. Consider this, the expenditure based presumptive tax (for car, foreign travel, flat, telephone), also introduced by Chidambaram in his budget speech, with mandatory compliance, could only broaden the tax-net by 0.5%. Could a voluntary scheme fare any better? Further an amnesty scheme will hamper the government’s regular tax collection since tax-evaders, specially businessmen and non-salaried professionals who can opt out of the tax net, will find it cheaper to declare with lower tax rates of amnesty schemes. And additionally, if the amnesty scheme is anticipated in advance they dodge paying taxes — shown by drop in revenue collections — before the scheme actually arrives. This was the case with VDIS. Evaders knew from March that the pardon was on its way and personal income tax collections in the first seven months of the current fiscal year recorded a drop. A post-VDIS drop may also occur, as has been seen in the case of earlier amnesty schemes. So, despite the ‘record haul’, the government comes out a net loser by hampering long-term tax collections and in effect proving the UF government’s crusade against corruption to be a sham.

In fact pardons at a more regular interval might shrink the tax base more and encourage tax-dodging. After all knowing that a tax amnesty is on its way, any tax-evader will absolve his sins periodically at a lower tax rate. Till the 80s pardons were at the rate of one in every 12 years. This decade, the decade of scams and unprecedented corruption, has already seen 6 amnesties in 8 years. And Chidambaram’s threat that this is the last chance to come clean and that no amnesties will follow holds little water. What when he is not around and with the Indian bourgeoisie’s hot favourite party waiting in the wings to capture power at the centre, his threat looks more unrealistic. In any case, is it not naive to believe that any bourgeois government, be it in coalition or not, will do away with such pardons at the cost of harming the interests of the elite? After all, isn’t poll funding, involving hoards of black money, an organic link between these parties and the Indian big business?

Having said all this, one would ask whether an amnesty does help a tax-dodger absolve his sins? This brings us to Chidambaram’s claim that one of the objectives of VDIS was to mop up black money. A decade back, a NIPFP study valued black money at 18-21% of the GNP which is quite hard to digest. Some independent assessments at that time estimated the figure to be anywhere around 50%. Neo-liberal economics tells us that in the era of liberalisation with lower tax rates, decontrols and regulation, more realistic(!) exchange rates, gold imports, higher salaries and so on would bring down black money levels. Looking around at the unprecedented corruption with mega scams, commissions, more foreign investment for dubious equity purchases, etc., one is hardly convinced. But still in the absence of any subsequent study and for the sake of calculations, let us work with the conservative figure of say 10%. With the current GNP at Rs.12.6 million crores the black money generated would be at the rate of Rs.1.26 million crores per year. Compared to this, the Rs.33,000 crores disclosed under VDIS is a piffle 2.6% for the 6 months during which it was effective. That much black money is anyway generated in a couple of weeks by the economy. And VDIS is supposed to disclose black money amassed year after year in the past and so the total black money left untouched is many many times higher even by conservative estimates!

Most of this black income doesn’t lie idle and, as we all know is used ‘productively’ (from the recipients point of view) in bribes, commissions, election funding and other transactions where black money need not change colour. But clearing the ever-growing cess of black money is only one aspect of mopping up black money. What about the numerous sources that contribute to the accumulated pool?

The NIPFP study while stating a well known fact said, "For most substantial public sector contracts, whether placed at home or abroad, significant cuts and kickback to key decision-makers has become a rule rather than an exception." Pilferage in public expenditure has grown drastically specially in the days of liberalisation and globalisation. As part of the economic reforms, numerous services and supplies in government departments, PSUs, autonomous institutions etc. have been privatised throwing open the floodgates for black money generation through cuts in tenders, contracts etc. However, the UF government has left this vast stream of black money generation virtually untouched.

This is apart from the stupendous total from the numerous scams in high places in the last 7 years. It is heard that booty queen Jayalalitha charged a flat 10% commission for the foreign projects approved under her reign, each running into hundreds of crores.

Tax-evaders always have a bag full of smart tricks and VDIS provided just enough loopholes to add to their comfort. More porous than earlier schemes, declarants under VDIS enjoy immunity from investigations under other laws of the land like FERA, and also get legitimacy for ownership of single units of property overseas and investments in shares, fixed deposits, debentures, bonds etc. Further, VDIS declarations cannot be used as evidence against the declarant in proceedings involving penalty imposition or litigations under IT Act, Wealth Tax Act or Companies Act. To take just one example, the son of a very senior Congress leader from Andhra Pradesh declared Rs.700 crores under the VDIS. The massive loot was amassed over the years from cuts and kick-backs. By paying Rs.200 crores he can now pocket the rest of the booty which now becomes white and rest assured that he can safely skirt all legal probes in the future.

Similarly, declaration of jewelry or silver articles had provided enough loopholes. First the clarification was to assess bullion and jewelry purchased prior to 1 April 1987 at the rates prevailing on that date. Later this clause was amended in November to assess them at the rates prevailing on the date of purchase or acquisition on the condition that "credible" proof of purchase or acquisition should be provided. However, what constituted "credible" proof was left unexplained. This loophole provided the most used channel of money laundering under the VDIS. Naturally, tonnes of silver was shown in backdated purchases when prices were a fraction of the current prices thus reducing the effective rate of taxation. This also led to mushrooming of silverware dealers providing fake receipts to anyone who needed them. This lucrative opportunity provided by VDIS to convert undisclosed assets into legalised assets with lower effective tax rate is probably the reason why land, gold and jewelry declarations is far more than that of cash. Of course, this could also be because black money is generally not kept in cash.

VDIS has also come in handy for real estate agents and many doing property business on the side. A property purchased earlier with part black money and shown in registration records at a value equaling the white money involved in the deal could now be declared at its actual price i.e. the white and the black money combined. Today, with an appreciation in the value of the property one could sell it of and go for a bigger property by adding some more cash (could be black) but with a higher amount of white money. The dubious land deals have indeed been made "more transparent" under the VDIS.

On the other hand, another trick doing the rounds was to present a white front for future black money generation. Fictitious overvalued declarations were presented and the due 30% tax paid. The remaining 70% value which now existed only in the books will be generated as black money in the future and still can be kept in the bank as white money. Fictitious declarations of gold and silver have also been made by stockbrokers. The press too contributed its bit in providing insights into the ingenious ways of money laundering possible under VDIS.

At the end of such an exercise there is little doubt about which section of society actually benefits from such amnesty schemes. For honest tax payers, mainly the salaried class paying tax at source at higher rates, this is a violation of equal tax for equal income. It also shows the government’s impotence in ensuring compliance by the bourgeoisie to come clean. Meanwhile, the ruling class eagerly waits for the next amnesty knowing fully well that amnesties are meant not only for exonerating ones crimes but also providing ample opportunities to commit further crimes.


Home > Liberation Main Page > Index Page February 1998 > ARTICLE