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Vol. 11 Issue 5.2 May 14, 2015
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UnFINA & Black Money in India
While a lot has been said and written about Undisclosed Foreign Income and
Assets (Imposition of Tax) Bill (UnFINA) over the last few days, most of it has
been based on the bill’s sections, directives and penalties, as cleared by the
Cabinet. The discussion around UnFINA has been relegated to the number of
years of imprisonment, fines and percentage of penalties. In our view this has led
to a case of missing the forest for the trees.
In essence, the UnFINA Bill provides for separate taxation of undisclosed income
in relation to foreign income and assets. It is proposed that such income
henceforth not be taxed under the Income Tax Act, 1961 but under the provisions
of the new legislation. When combined with defined punitive measures of
penalties & imprisonment, one has in theory, a potent addendum to the growing
net of laws and measures against Money Laundering.
It is expected that the government may provide a compliance window of 3 to 6
months, though it is our view that a window of minimum 9 months should be
provided to those, who may want to take this one time opportunity, liquidate their
assets and bring them back into the country. It is also important to note that this is
not an amnesty scheme, even though differential rates of penalties are being
applied.
It is amply clear, that the law has been taken, in places, from the existing Income
Tax Act, 1961 and hence by that singular measure, is not radically new. Our
politicians and bureaucrats had either the foresight or were faced with black
money related issues, at the time of enactment of the Income Tax Act in 1961,
which should not come as a surprise, especially since the first major law targeting
Black Money, came into play with the Bank Secrecy Act, 1970 (USA). It is well
known that the Hawala route of financial transfers was prevalent during medieval
times and restricted even by roman laws. In short, this is an old issue, which has
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Sarabjeet Singh
been recognized and dealt with, under modern laws for over 60 years.
Any new law or directive which seeks to tackle Black Money, should be innovative
and radical enough to effect major evolutionary changes. UnFINA seems to take
incremental steps, at best, and widen the regulatory net against Black Money.
Black Money is now prevalent enough in public consciousness for us to discuss
the real underlying issues. Black Money is usually looked at through the moral
prism of ‘Good vs Evil’. The fact is that our financial infrastructure, convoluted tax
policies, economic history, growth issues, terrorism and political requirements are
factors in this increasingly complex issue. Hence, Black Money should be
classified under two broad themes of ‘Redeemable’ & ‘Infected’.
While the former is Black Money created out of income or assets on which taxes
have not been paid, the Infected Black Money is related to ‘Proceeds of Crime’ i.e.
income generated from nefarious, anti-national and illegal activities such as drugs,
human trafficking, terrorism, corruption etc. It is worthwhile to note that the
principle behind major AML (Anti Money Laundering) Compliance norms across
the world are aimed at tackling ‘Infected Black Money’ rather than ‘Redeemable
Black Money.
A close look at the demand and generation of Black Money, will give a better
perspective on the prevalence of Money Laundering activities in India. Black
Money is used to fund one of the largest ongoing democratic exercises in the
history of mankind i.e. Indian Elections. These are the extensive & intensive, year-
round activity of electing representatives in the Lok Sabha, State Assemblies,
Municipal, Gram, Zila & Block Panchayat, Student & other Unions. Hence, any
law, act or force must look at rectifying this fundamental issue which leads to a
moral vacuum and leadership deficit in our fight against Money Laundering.
Ever since the days of the License Raj, regimes of 100%+ taxation rates and
extensive red tapism, the business community has found financial solace in
keeping a significant portion of their businesses ‘off-the-books’. While the
government is simplifying taxation (GST & other measures), reducing the
complexities of getting the right approvals and licenses (single window process), it
is the obligation of the Indian business community to proactively rectify the tax
evasion culture and wean itself off the need for unaccounted profits.
The list of illegal & criminal activities which lead to the generation and usage of
Black Money is fairly long and equally perilous. It is this issue which will ultimately
decide the success or failure of our Anti-Money Laundering laws. Make no
mistake, ‘Infected Black Money’ is generated through criminal and illicit activities
Mukesh Butani, New Delhi
+91 11 3066 3010
Sanjay Mehta, New Delhi +91 124 669 5080 [email protected]
Sarabjeet Singh, New Delhi
+91 124 669 5044
Abhishek Bali
and represents clear and present danger. Hence any law, which does not address
the root cause of funding illegal and nefarious activities is window dressing at
best.
BMR Comments
UnFINA fills a small hole related to income & assets abroad and is an
addition to multiple laws & acts in India, aimed at addressing the issue of
Money Laundering. Having said that, if the present government is genuinely
interested in leveraging its power as the dominant political party and can
coordinate various government agencies to tackle this issue, it may be
looking at achieving 5 distinct objectives with UnFINA
1. Taking the initial steps towards separating ‘Redeemable’ and
‘Infected’ black money to cu the problem down to a manageable size
2. Generating much needed revenue for government coffers, using the
compliance window
3. Offering businesses, organizations, associations and businessman the
ability to clean up their books and initiate a fresh start
4. Redefining, refining and regulating the processes and response of
Financial Institutions & Banks to safeguard themselves against Money
Laundering
5. Developing focused responses and coordination between agencies to
tackle ‘Infected Black Money’
These would be huge wins for the present government in the fight
against Money Laundering.
BMR Business Solutions Pvt. Ltd.
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