French Humour

Checking Tax Evasion

There is increasing recognition of the urgency with which the menace of tax evasion, black money and corruption needs to be tackled. These have become burning issues due to the need to close the fiscal deficit, domestic pressure and increasing pressure in international forum such as G20.

Global Financial Integrity estimates illicit flows out of India of USD 462 Billion, between 1948 and 2008. The Budget FY’13 took a few measures to check tax evasion. In this Budget, the Government has now made it mandatory for disclosure of all assets held abroad.

India has recently signed the Multilateral Convention on Mutual Administrative Assistance on tax measures. This will enable better coordination among countries in matters related to tax information sharing. Also announced in the Budget FY’13,

• 82 Double Taxation Avoidance Agreements (DTAA) and 17 Tax Information Exchange Agreements (TIEA) have been finalized. The FM also stated that information regarding bank accounts and assets held by Indians abroad has started flowing in.
• Dedicated exchange of information cell for speedy exchange of tax information with treaty countries is fully functional in CBDT.

Further, Budget announced the establishment of Directorate of Income Tax Criminal Investigation in CBDT. A white paper on Black Money will also be presented in the current session of Parliament. Measures taken to deter the generation of unaccounted money include:

• Tax to be deducted at source on purchase bullion or jewellery worth over Rs 2 lakh in cash
• Tax to be deducted on transfer of immovable property (other than agricultural land) above a specified threshold
• Increased onus on closely held companies of proof for funds received from shareholders as well as taxing share premium in excess of fair market value
• Taxation of unexplained money, credits, investments, expenditures etc. will now be at the highest rate of 30 per cent irrespective of the slab of income.

The Budget has also proposed the introduction of a General Anti Avoidance Rule (GAAR) to counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel.

Despite the World Bank Stolen Asset Recovery Initiative (tracing-freezing-ceasing-repatriating) and other information sharing initiatives at international forums and G20, a lot remains to be desired. The Financial Secrecy Index of the Tax Justice Network ranks countries according to their performance on tax information and financial secrecy.

Developed countries along with their satellites are the worst performers. Interestingly, most of these are a part of G20. This makes G20 an apt forum to carry negotiations and the dialogue further. Steps taken in India are small yet concrete and the initiative needs to be taken forward in the right earnest.

Unsanitary Sanitation

I visited some slums in Delhi in order to assess the availability and condition of sanitation facilities for a volunteer program. And ‘deplorable’ is the word.

The slums I visited were notified slums and had been provided community bathrooms and toilets by the Government. Some of these were in an unusable condition, effectively amounting to no access. By far the worst was the ‘Sonia Gandhi Camp’ at RK Puram, where the outlet pipes of the toilets were broken resulting in a stinking muck all around. The slum habitants waited for nightfall to defecate by the roadside, in the open. All slums had a government/NGO cleaner and mostly, the worker was irregular.More details on the visits can be found at: What's that Smell?

A UNICEF survey conducted in 2009 estimates that 1.2 billion across the world defecate openly. Of these, the largest number is of Indians: 665 million defecate openly.

Graph: Distribution by country of people defecating openly

Country; Population defecating openly; Population defecating openly in the country as percent of total world population defecating openly

Source: UNICEF

Poor sanitation has adverse health implications: deaths, productivity loss due to sickness, increased public health care costs. According to WHO, in 2008, 13% of child mortality under age of 13 was due to diarrhoea. Indeed there is significant economic cost of the productivity loss. Water and Sanitation Program estimates the loss in income at USD 54 billion, about 6.4% of India’s GDP: http://www.wsp.org/wsp/node/1150

The Cash Cow

In view of the latest sting operations that show crores of cash exchanging hands:

The problem is grave- a mix of greed, power, exchange of favours, underground economy (see The exponential rise of India's Black Economy, published Aug'10)

The solution needs to be a mix of change in regulation, monitoring, taxation laws (see Funding Political Campaigns, published Nov'10)

Dharavi in 2002:

Dharavi in 2010:

Outbursts of growth in the slum pocket of Mumbai. It is good to see India acquiring a fancy skyline but it is disheartening to see the condition of slum dwellers.

Cornerstones

Population aged under 15 years in 2005:

Sourced from Wiki: http://en.wikipedia.org/wiki/Youth

In a country like India, with over 400 million youth by 2022, the three most important policies that form the cornerstones of an economy include:

Basic Education Needless to say basic education, expected to be achieved through the Right To Education Act, is the most important step that has been taken in this direction.

However, it is unlikely that Indian economy can provide so many white collar jobs and therefore may result in inadequate returns to education. Besides, of course the issue of supply of education remains, after all only so many graduate out of the IIT and IIM. What is required is vocational training.

Given that cities are the places where a large proportion of this youth is likely to be employed, Housing policies assume as much importance as the above two. With the present land demand and supply dynamics, the real estate costs make it prohibitive for a large proportion to access affordable housing. Capabilities that enable one to earn livelihood but not enough to afford shelter are rendered useless! Constant exclusion makes white collar jobs with remunerative returns seem like the only solution to the issue of housing in cities. Govt. policies targeted towards provision of low cost housing are thus the third supporting pillar.

13 million hectares of forest land was diverted for non forest purposes each year between 2000 and 2010 according to the World Forest Resources Assessment (FRA) Report (also see 550 years, published Oct'10).

This piece is about the value of the forest resources.

Determining the value of Indian forests was a long drawn process, a Supreme Court referred committee estimates, which were to be vetted by the Central Govt. established committee.

The Central Empowered Committee placed a value of Rs 8 lakhs on a hectare of average forest land. More productive or more dense lands have a higher value, 8 lakhs scaled up by factor based on ‘judgment’. The process needless to say is non transparent and needs revision.

According to the FRA, revenue derived from forests is close to world average. Also, the value of fuel and wood products from Indian forests is relatively higher in India as compared to other countries.

The chart below shows per hectare forest revenue collected by country (2005, progressively darker implies a higher revenue, Source: FRA)