Only Rs 6 of every Rs 100 detected black money seized in tax raids

Govt has revealed that tax raids over the decades have recovered only a small part of the detected black money in the economy

To smoke out undisclosed income in the economy is the primary reason Prime Minister Narendra Modi has cited to buttress his government’s decision to demonetise Rs 500 and Rs 1,000 currency notes. But the Modi government, it turns out, hasn’t done any better than its predecessors when it comes to seizing undisclosed money after detecting it.

Figures revealed by the government in Parliament during the winter session show, for every Rs 100 of undisclosed income detected, the taxman seized a paltry Rs 6 during 2015-16.

The situation was hardly better in 2014-15, the first year of the Modi government, when tax authorities managed to seize Rs 7 out of every Rs 100 of detected undisclosed income.

A look at Manmohan Singh-led United Progressive Alliance (UPA) government’s achievements in this respect reflects a similar trend. Between 2009 and 2012, authorities managed to seize only Rs 6 of every Rs 100 of undisclosed income detected by them. By the time UPA completed half of its tenure in its second term, almost Rs 45,000 crore worth of undisclosed income had been detected by authorities. Similarly, in 2013-14, a year before UPA-II was voted out of power, tax authorities seized Rs 7 out of every Rs 100 of undetected income.

Irrespective of the government in power, tax authorities seem to have achieved limited success in actually recovering money after raids.

Former Central Board of Direct Tax (CBDT) officials explain that there is no dearth of information regarding undisclosed income with tax authorities. But there could be inevitable leakages during search, seizure and recovery operations.  

Once an IT commissioner receives information about undisclosed money, jewellery or gold, he authorises his inspection officers to take action. The officers who form the raid party have powers to enter any premises, break open locks, seize any suspect items and place identification marks on objects that could be examined later. The inspection officers are also authorised to take police personnel along with them on a raid – a request the police cannot refuse.

After tax authorities seize undisclosed assets, they are required to take action within 90 days. This action involves estimating the undisclosed income on the basis of recoveries during the raids. Once this figure is ascertained, a tax liability is calculated. If the offender fails to pay this amount, the I-T department retains a part of the seized assets (equal to the tax liability) and releases the rest. Any books of accounts that may have crucial information about the offenders’ financial activities are retained for a period of six months.

What this means is that even as only Rs 6 of every Rs 100 worth of undisclosed income is seized, the tax recovery figures from the seizure may be even lower.

A look at Parliament records shows that previous governments over decades had little clue about black money in the country. Then finance minister, P Chidambaram has told Parliament in 2006 that the only estimate his government had was based on a study done by the National Institute of Public Finance and Policy (NIPFP) in 1983-84. At a time when Indira Gandhi was India’s prime minister, the report estimated black money figures in the country at anywhere between Rs 31,584 crore and Rs 36,786 crore.  

However, under UPA-II, the standing committee on finance recommended an urgent need for an estimate on black money in the economy. The government put two other institutions apart from NIPFP on the job. These were Faridabad-based National Institute of Financial Management (NIFM) and the National Council for Applied Economic Research (NCAER). While NIPFP gave its report in 2013, the other two institutions submitted their final reports a few months after the Modi government came to power in 2016. The Modi government has reportedly kept the information contained in these documents out of the purview of the Right to Information (RTI) Act. 

Not only did India have inadequate information on black money to date, even its tax authorities were recovering insignificant amounts in their tax raids. Only time will tell whether Modi’s demonetisation move has achieved what thousands of tax raids over the years could not.