Difficulties in Tracking Black Money


“Measures to Tackle Black Money in India and Abroad”, Government of India, Ministry of Finance, 2012; “White paper on Black Money”, Ministry of Finance, Department of Revenue, Cenral Board of Direct Taxes, May 2012; analysis The existing legal and administrative framework to deal with black money has proved to be largely ineffective, resulting in significant amounts of illicit money not being reported, or even detected. Historically, polices that have been established to curb accrual of black money have not been enforced by the agencies. In addition, systems and processes in place have been circumvented, rendering them unproductive or even obsolete in most scenarios.
Lack of effective data mining tools (used by the government) that can analyze possible cases of non-disclosure or tax evasion, is another factor acting as an impediment to reporting illegal money. For instance, the government does not have a robust database which contains information from all agencies and departments on monetary transactions and wealth generation.
Further, a large part of the Indian economy is unorganized and involves heavy use of cash transactions, which do not leave audit trails. The efforts aimed at regulating and controlling cash transactions have been in vain, largely due to a significant segment of the population being poor and hence deal in cash, particularly in rural parts of the country. Non-usage of mainstream banking channels (credit and debit cards and other instruments) for transactions hinders the tracking of illegal money exchange.
It has also been argued that auditors lack accountability when assessing income and reporting discrepancies. This effectively prevents the tracing of black money at source.
The key factors that prevent tracking and reporting of black money are discussed below:-
Economic Intelligence agencies technologically inept: Intelligence sharing among different central economic intelligence and law enforcement agencies through the Central Economic Intelligence Bureau (CEIB) and the Regional Economic Intelligence Committees (REICs) is ineffective as the agencies are not technology-savvy and lack a common platform for information exchange. The intelligence gathering mechanisms need to be more broad-based so that the entire gamut of economic activity is captured electronically, mined and analyzed.
Lack of sufficient data mining tools and electronic reporting mechanisms: Dearth of sufficient electronic reporting mechanisms, data-mining and analysis tools hamper detection and reporting of black money. As a first step, the third-party reporting mechanism of the I-T Department needs to be computerized and cover most high-value transactions. High value transactions are reported to I-T department by the property registrars, banks, RBI, mutual fund companies, etc., through third-party reports or annual information reports. The department uses these reports to verify the information disclosed by the individual in his income tax returns.
Absence of databases to capture foreign remittances, property and Jewellery transactions: The reporting and monitoring systems to trace dealings in bullion/Jewellery through the Income Tax /Customs/Sales Tax Acts are ineffective. There is no computerized database maintaining the revenue records indicating the ownership of all property, due to which it becomes difficult to reduce the element of black money in transactions relating to immovable property. Similarly, there is no central database to capture transactions in bullion and jewellery.
Lack of a central database integrated with information from all agency databases: There is a lack of seamless integration of the systems and databases of all departments and agencies on real-time basis into a single central database. The IT department compiles information from various returns filed by tax payers such as returns of income and wealth tax, TDS, international remittances, tax audit reports, and international transactions. Information collected from different agencies such as banking and financial institutions, registrars of immovable properties, mutual fund organizations, and credit card agencies is also stored in the database of the department. Similar systems and databases are maintained by other government agencies such as the Customs and Excise Department, etc. This wealth of information from various agencies needs to be integrated into a single database. The Exchange of Information (EOI) Cell also needs to be fully integrated with the IT Department and other investigation agencies.
There is also further scope for development of electronic and net-based services and for improving the resources of tax administration, which would help in reducing the cost of compliance for the taxpayer.
Lack in effective implementation of existing laws: There is ineffective implementation of relevant laws like Excise, Sales tax, Anti-Corruption and Electoral laws by the concerned agencies that can curb generation of black money. Law enforcement is ineffective due to lack of close inter-agency coordination to identify the laws violated and the violators, and inefficient intelligence sharing among different law enforcement agencies.
Lack of strong legal support to agencies: The CBDT and CBEC lack complete administrative and financial autonomy in formulating tax policies for better tax administration. The legal support to various law enforcement agencies needs to be enhanced with specialized judicial machinery and speedier trials.
Money laundering laws not reviewed regularly: The existing laws dealing with violations are not comprehensively reviewed by the concerned administrative ministries on a regular basis, in view of the changing economic scenario. This results in archaic laws affecting the effective detection of black money.
Moderate regulatory and implementation laws for KYC: Lack of an effective regulatory framework by the RBI, state and central governments, and inability in ensuring stricter adherence to KYC norms leads to non compliance by banks, financial institutions and cooperatives. The non compliance in turn leads to opening of fictitious fraudulent bank accounts which are ultimately used as a source of generating and storing of illicit money.
Absence of laws: The country does not have strict laws on reporting all global transactions above a threshold limit by the entities operating in India. Absence of a law to protect whistle-blowers as well as an effective witness protection program results in loss of credible information and non-cooperation by witnesses.
Generally, tax evasion takes place due to the loopholes in the taxation systems. For example, a person may not show the same amount of sales in its service tax return as has been shown in the income tax return. A black money holder takes undue advantage of this situation, knowing that his chance of being caught would be the slimmest. Therefore, due to lack of training to identify such transactions, the tax officers do end up overlooking these instances.
Further, due to lack of implementation of a standard procedure and training thereon to handle concurrent transactions, tax officers adopt dissimilar approaches for similar instances of tax evasion, creating a grave possibility of skipping important issues. These trainings would enable the tax officers to have a harmonious and comprehensive approach towards identification of transactions, ensuring that none of the discrepancy in a standard is missed out.
Lack of training to adapt and handle the Information Technology Infrastructure also makes a tax officer vulnerable to a situation of tax evasion. He may not be in a position to identify the cases of apparent defaults. An inadequately trained officer finds it difficult to extract the requisite information from the system and accordingly, analyse thereafter. This approach also gives
handle to the black money holders to take advantage of this situation and carry on their activity of tax evasion without much of a concern.
The tax laws are invariably complex and constantly evolving in nature, due to amendments and judicial pronouncements. A regular and intensive training is imperative for a tax officer to be abreast with such changes and their implications. Due to such training modules and sessions, the tax officers would focus their time and energy on the issues which are relevant as per the current laws and not on the issues that have already been decided by various judicial forums. Due to lack of training, the tax officers tend to overlook the instances of tax evasions arising out of different and incorrect tax related interpretations adopted by an assessee and accordingly, this gives boost to the black money holders to invariably act in the same manner.
Quality of Personnel: Additionally, the quality of manpower in the IT department and other agencies dealing with black money is not up to the mark – there is a lack of training on knowledge of tax laws and domain knowledge of financial investigation, IT skill sets as well as global best practices to effectively deal with black money. To address the training needs of personnel, the department is setting up a Human Resource Management System (HRMS) which would contain all information of the officers and job profile of the various posts in the department, to identify officers who require specialized training and the training requirements of all personnel.
Limited reach of Agencies: The Directorate of Revenue Intelligence (DRI) maintains constant interaction with its Customs Overseas Intelligence Network (COIN) offices to share intelligence and information through diplomatic channels on the suspected import/export transactions to establish cases of mis-declaration, which are linked with tax evasion. The scope and reach of COIN offices is limited and hence, cases of money laundering are not reported in full. 

Friday, 02nd Oct 2015, 10:59:26 AM

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