Addressing a gathering to celebrate the Foundation Day of the Institute of Chartered Accountants of India [ICAI] on July 1, 2017 which coincided with the launch of the most revolutionary reform viz. GST [Goods and Services Tax] of post-independence India, prime minister, Modi shared some startling numbers.
Saying chartered accountants [CAs] best understand the language of numbers, he opined “while, there are crores of Indians going on foreign trips every year, crores having luxurious/high end cars and crores of palatial homes/farm houses, yet there are a meager 32 lakh persons declaring their annual income above Rs 10 lakh”.
32 lakh persons declaring income above Rs 10 lakh are mostly from salaried class and include only a fringe of those living in luxury and extravaganza. Those in the latter category and not paying any tax would be at least 5-6 crores or 20 times the former. This speaks volumes about the quantum of income that remains outside the tax net.
Clearly, the prime minister was pointing towards concealment of income and generation of black money on a gargantuan scale. If, black money is generated then, it needs an outlet also. In this regard also, Modi shared some startling numbers. He informed that ‘within 48 hours before launch of GST, the government cancelled the registration of 100,000 shell companies [black money is laundered through such companies that exist on paper only]’. Another 200,000 are under surveillance for their wrongful acts and irregularities.
The ball won’t stop at mere de-registration. The investigation wings viz. Financial Intelligence Unit [FIU], Enforcement Directorate [ED] and Income-Tax department will launch a crack down on the real beneficiaries/owners of these companies and take necessary action including under the Benami Act. Freezing their bank accounts will be an inevitable part of the action plan.
How did the authorities get to know about these shell companies? In this regard, Modi referred to his historic decision of demonetization [old 500/1000 currency notes] on November 8, 2016 that forced hoarders of black money to deposit this in banks [they had no other option as otherwise, all of this would have become junk by December 30, 2016 besides landing the hoarders in jail].
Using advanced techniques like ‘data analytics’, the government mined this data to identify shell companies for follow up action. The mining has also led to over a crore of new assesses filing their return for 2016-17 [and they will continue to do so in future] thereby augmenting the tax revenue by leaps and bounds on sustainable basis.
Dwelling on his number cocktail further, he told the financial wizards that the un-accounted/black money of Indians which about a decade ago, used to swell coffers of Swiss banks has now reduced to trickle. This again is due to the proactive efforts of Team Modi in various international fora [including with the government in Switzerland] that led to signing of the Automatic Exchange of Information [AEOI] agreement which will kick off next year.
The AEOI juxtaposed with the enactment of the Black Money Law [under this any Indian resident illegally stashing money abroad is handed out jail term up to 10 years] in 2015, will ensure that no one has the courage to illegally transfer funds abroad.
Modi spent most of his time on GST – yet another master stroke [after demonetization] – which has multiple benefits, the most crucial being onslaught on black money and corruption. It does so in two ways. First, by doing away with a maze of taxes, it has dismantled several interface points with the authorities – at the central and state level – and associated corruption money involved in settling cases.
Second, under erstwhile taxation system, a big chunk of trade was never reported leading to tax evasion. Under GST, the seamless/un-interrupted tax and input tax credit chain will ensure that all transactions get reported on the GST Network [GSTN]. This will leave an ‘audit trail’ and thereby help identify those entities who do not report their transactions. This will curb evasion and boost revenue.
At another level, Modi has made a frontal assault on leakages in implementation of a plethora of welfare schemes. These leakages worth tens of thousands crores every year are nothing but corruption money in the hands of politicians and bureaucrats who misuse their official position to divert funds allocated for benefit of the poor.
The present government has made a big dent on this by ordering direct transfer of subsidy and other forms of financial assistance to the account of the beneficiaries. This way, it has eliminated millions of bogus beneficiaries [a standard modus operandi used by corrupt officials/politicians for embezzling funds] under schemes for administering subsidies viz. fertilizer, food, LPG etc.
Why did Modi choose CAs forum [that too the Foundation Day celebrations of ICAI] to share his ideas and glaring facts on the activities of tax dodgers and black money mongers?
It is evident that tax evasion and money laundering cannot happen without the support of CAs. The criticality of the linkage between the two would be clear from Modi’s epochal statement “the signature of a CA is even more important than that of the prime minister”. He was also giving a veiled threat to the CAs to stop helping dodgers; instead, the former should galvanize the latter to disclose their income and pay taxes.
The exhortations of PM gel with his over-arching theme [ever since he took over the reins 3 years back] that he as Pradhan Sewak [euphemism he used in the very first address on Independence Day 2014 for the post of prime minister] shall endeavor to bring back the resources that were looted by the corrupt for generations and give to those to whom these really belong [read majority of the poor].
In each of the areas that Modi has under his surveillance to bring back this wealth and prevent such loot in the future, the chartered accountants have a crucial role. From the resounding acclamation and endorsement they gave on each theme, initial signals are positive. However, considering that the evils are deep rooted, this will need a complete shake up of their conscience to deliver.
One can only wait and watch!