Aspects of legalising black money
Thursday, 2 April 2009
Enayet Rasul
THE idea of legalising black money is no more a casual one on offer. Government appears to be considering it seriously. Top chamber bodies of the country are vigorously promoting it, it seems. A good number of members of a permanent parliamentary standing committee on the management of the economy, has also approved of the idea. Day by day, it is gaining force and a concrete offer to black money holders could be around the corner.
There are, of course, the dissenters, too, and their objection is understandable. Black money, after all, is black money. It is not fair ; black money is usually the proceeds of immorality although the degree of that immorality can vary. Black money can be traced to drugs, arms and human trafficking. In these cases, the monies are indeed the by-products of serious crimes. While in other cases, such as bribes received by civil servants and undisclosed part of monies stashed away from sale of lands and other goods, form milder cases of immoralities involving black money.
The uncompromising moralists and legalists are of the view that giving a chance to cleanse such money into white must not be allowed on several grounds. First, the opportunity to legalise itself will mean a sort of legal recognition to what is legally and morally reprehensible. Second, any legal seal of approval to black money will keep the encouragement alive for the creators of black money to keep on engaging in their legally unendorsed activities. Thus, government will continue to be deprived of revenues as black money holders or keepers of undisclosed money or income, are afforded a safety valve to be able to legitimize their illegally amassed wealth in the form of money at a point of time. Thirdly, the whitening of black money discriminates against the law abiding citizens. They find no rewards for honestly declaring income and for sacrificing in taxes and various ways for doing so while the income generated as the proceeds from various crimes and illegal conduct, the beneficiaries of such things hardly pay penalties and are ultimately put at par with the former. There is also the argument that black money whitening also violates the spirit and the purpose of the anti-money laundering act.
Thus, there are powerful arguments, no doubt, in disallowing whitening of black money. But there are also stronger arguments under the present circumstances the country is going through in the economic sense, to allow black money whitening under strictly observed terms and conditions. The latest proposal for whitening black money is better conceived. It would not be like such permissions given in the past when black money owners simply could declare their amounts and turn them legal by paying a certain percentage of tax charged by the government on the amounts declared.
The plans this time are radically different. The black money holders would be required to buy government bonds with their black money which they would be enabled to encash as white money on maturity while also getting a return in interest from the amount. The bonds sold by the government and funds collected through this operation would be routed exclusively to the industrial sector or for financing other productive activities in the economy. Thus, the proper spending of the mopped up resources or their spending on truly productive purposes, would be sought to be ensured. In sum, the legalised black money would be routed mainly to finance investments, industrialization and employment.
Questions may arise whether the whitened amount would be enough to make the desired impact on the formal economy. If the response to the offer turns out to be a good one, then huge funds may be mobilised from the operation. According to some experts, black money is valued at nearly half the size of the country's gross domestic product (GDP), and that may be available for whitening. The amount could come as a boon for the cash strapped government from falling revenues to finance developmental activities and for making available to the private sector through lending for various investment operations.
The experts are rightly of the opinion that allowing black money to retain its illegal label will only retain the incentives for such money holders to keep idle their money or to go on generating more black money. But idle black money not put to use generates no wealth or economic activities. The incentive to go on generating more black money is also a blighter for the economy. The best outcome can be no other than creating incentives for black money holders to bring their resources into the formal economy to aid production and all sorts of authorized activities. From the opportunity, black money holders are likely to see the merit of channeling progressively more and more of their resources into the formal economy. This, in turn, would put limits on the amounts retained as black money.
So, the arguments of economic pragmatism or realism should outweigh the purely moral or legal ones. Compromises in strict legality and morality are not unheard of or may not be banished for the greater collective good or for the benefits to accrue to the economy as a whole.
THE idea of legalising black money is no more a casual one on offer. Government appears to be considering it seriously. Top chamber bodies of the country are vigorously promoting it, it seems. A good number of members of a permanent parliamentary standing committee on the management of the economy, has also approved of the idea. Day by day, it is gaining force and a concrete offer to black money holders could be around the corner.
There are, of course, the dissenters, too, and their objection is understandable. Black money, after all, is black money. It is not fair ; black money is usually the proceeds of immorality although the degree of that immorality can vary. Black money can be traced to drugs, arms and human trafficking. In these cases, the monies are indeed the by-products of serious crimes. While in other cases, such as bribes received by civil servants and undisclosed part of monies stashed away from sale of lands and other goods, form milder cases of immoralities involving black money.
The uncompromising moralists and legalists are of the view that giving a chance to cleanse such money into white must not be allowed on several grounds. First, the opportunity to legalise itself will mean a sort of legal recognition to what is legally and morally reprehensible. Second, any legal seal of approval to black money will keep the encouragement alive for the creators of black money to keep on engaging in their legally unendorsed activities. Thus, government will continue to be deprived of revenues as black money holders or keepers of undisclosed money or income, are afforded a safety valve to be able to legitimize their illegally amassed wealth in the form of money at a point of time. Thirdly, the whitening of black money discriminates against the law abiding citizens. They find no rewards for honestly declaring income and for sacrificing in taxes and various ways for doing so while the income generated as the proceeds from various crimes and illegal conduct, the beneficiaries of such things hardly pay penalties and are ultimately put at par with the former. There is also the argument that black money whitening also violates the spirit and the purpose of the anti-money laundering act.
Thus, there are powerful arguments, no doubt, in disallowing whitening of black money. But there are also stronger arguments under the present circumstances the country is going through in the economic sense, to allow black money whitening under strictly observed terms and conditions. The latest proposal for whitening black money is better conceived. It would not be like such permissions given in the past when black money owners simply could declare their amounts and turn them legal by paying a certain percentage of tax charged by the government on the amounts declared.
The plans this time are radically different. The black money holders would be required to buy government bonds with their black money which they would be enabled to encash as white money on maturity while also getting a return in interest from the amount. The bonds sold by the government and funds collected through this operation would be routed exclusively to the industrial sector or for financing other productive activities in the economy. Thus, the proper spending of the mopped up resources or their spending on truly productive purposes, would be sought to be ensured. In sum, the legalised black money would be routed mainly to finance investments, industrialization and employment.
Questions may arise whether the whitened amount would be enough to make the desired impact on the formal economy. If the response to the offer turns out to be a good one, then huge funds may be mobilised from the operation. According to some experts, black money is valued at nearly half the size of the country's gross domestic product (GDP), and that may be available for whitening. The amount could come as a boon for the cash strapped government from falling revenues to finance developmental activities and for making available to the private sector through lending for various investment operations.
The experts are rightly of the opinion that allowing black money to retain its illegal label will only retain the incentives for such money holders to keep idle their money or to go on generating more black money. But idle black money not put to use generates no wealth or economic activities. The incentive to go on generating more black money is also a blighter for the economy. The best outcome can be no other than creating incentives for black money holders to bring their resources into the formal economy to aid production and all sorts of authorized activities. From the opportunity, black money holders are likely to see the merit of channeling progressively more and more of their resources into the formal economy. This, in turn, would put limits on the amounts retained as black money.
So, the arguments of economic pragmatism or realism should outweigh the purely moral or legal ones. Compromises in strict legality and morality are not unheard of or may not be banished for the greater collective good or for the benefits to accrue to the economy as a whole.