Lok Sabha polls 2014: Black money key in political funding

The government has complied with the Supreme Court’s directive to disclose the names of 26 Indian holders of bank accounts in Liechtenstein, a tax haven. However, the government still opposes appointing an independent panel of two retired Supreme Court judges to draw up a blueprint to retrieve black money stashed abroad, saying this is the job of the executive. That is correct. The Supreme Court is barking up the wrong tree. Unaccounted wealth is highly fungible and only someone who does not like more money would keep wealth in low or zero-yield accounts abroad when it can be deployed in profitable economic activity at home. The focus of policy should be to prevent generation of black money, not chasing presumed stashes abroad that look like wild geese the more you chase them.

A key reform is to change the way politics is funded. Big political parties guzzle cash, and that is evident even in these elections. It is imperative to track every rupee spent to the source of funding to end the unholy nexus between political parties and donors salivating over the quid pro quo. We need to write and enforce new rules to make political funding transparent. We also need institutional reforms in real estate, where tax evasion is huge, to create more urban land space.

Simple and clear taxation policies and low tax rates will reduce the cost of compliance. A quick switch over to the goods and services tax ( GST) will create multiple audit trails to value added in business and also a unified database for direct and indirect taxes. The country’s IT prowess should be used to follow up on these trails and strengthen enforcement. India must also be a willing participant in the emerging global cooperation to halt aggressive tax planning that leads to base erosion and profit shifting.