Cost Of Disclosing Funds Abroad Put At 17.5%

The cost of disclosing funds stashed abroad will be nearly 40 per cent lower than what has been indicated in the voluntary disclosure scheme announced by finance minister P Chidambaram in the budget for 1997-98. The effective cost, after paying a 30 per cent income tax as stipulated in the scheme, would be 17.5 per cent, the rate at which most banks and financial institutions lend funds.

A substantial part of the black money held by Indians in foreign banks and enterprises was sent out of the country at a time when the dollar-rupee exchange rate was steady at Rs 31.37 to a dollar. As the cost of a dollar is now in the region of Rs 35.88, the launderers stand to earn Rs 4.51 for each dollar brought in.

 

Money launderers who own companies can make a killing if they simultaneously take advantage of the amnesty and the facility for buy-back of shares, also announced in the budget. Shares of most companies are now available at a much lower cost, about half the market value a couple of years ago.

A recent study by three economists of the Florida University, United States, says capital flight from India to the US through over-invoicing and under-invoicing of exports and imports was $5.8 billion in 1994 and $5.5 billion in 1995. Another route for sending money abroad is the extremely popular havala channels.

Although there is no reliable estimate of the amount sent out of India over the years, some economists say it could be $100 billion. The amnesty scheme also saves the launderers the cost of havala transactions which they would have incurred if the money had to be brought back for some other purpose.

In terms of the current value of the dollar, the tax element works out to Rs 10.76 and the burden on the money launderer Rs 6.25 for each dollar.

Disclosing black money parked within the country may turn out to be more complex. For instance, if a person decides to declare the true gains from sale of property, he will actually be exposing the buyer.

Black money works through chains and people are most reluctant to break the chain. Besides, this amnesty is only for income tax purposes and does not cover other laws that a black money hoarder may have violated, said a source in a finance company.

Financial circles say there is more than meets the eye in the finance ministers decision to involve the state governments by offering to pass on 77.5 per cent of the income to them.

The state governments will go slow on implementing various state laws, maybe look the other way whenever a person comes up for disclosure.