How to reduce black money in property deals




I made some angry tweets about black money in property deals, and Aam Aadmi Party supporters (predictably) asked me to make a suggestion on how to deal with the issue, and if it was useful, the party could adopt it.

Here is what I said:

Black money is such a tamasha. No one talks about every person who owns a home paying for part of it in black. Nationwide. Not even AAP.

Stand on road. Look at the buildings. Think of the flats in each. Now think area, district, state, country. That is how much black money.

No need to go to Switzerland. Every land records office has records of deals done. The white part is right there on paper.

Well, I don’t see what is so difficult. It is far more difficult to nab your bribe taking cops, which Aam Aadmi Party has done by pretty much turning citizens and their phones into walking sting operations.

Should not be so tough to wipe out black money in property deals.

The main reason for black money in property deals is to save money on tax. The amount of tax should be reviewed. If it is appropriate, so be it. If not, it should be reduced.

Then turn the whole thing into a sting operation. Flat sales can’t exactly be secret. So monitor the property records – the biggest source for a list of deals happening. Offer rewards to whistleblowers where cases get proved right – a percentage of the black money equivalent to whatever the tax amount is. Don’t get into major punishments and court cases and such. If investigations find that the flat has been purchased/sold for more money than stated on paper, have a procedure in place.

Offer violators the money they paid on paper and confiscate the flat. The end. If they were honest and didn’t do corruption, they may get hassled, but at least they don’t lose their investment. The corrupt lose the black money they invested. The state gets concrete assets that can be auctioned instead of long drawn court cases and people trying to apply influence or media pressure and what not.

Offer a date by when people who have already done their flat deals with black money before the new procedure kicks in can declare them and pay the difference in tax owed to the state. After that, it is open season on them too.

Or some variation thereof. With so many bureaucrats, AAP may even come up with something more effective.

Kitna paisa aayega to the state? How come no one speaks of this? Because it is an “everyone does it” wala cheating of the state. The idea is that the state gets some amount, right? Paid “just” a little less after spending so much on home. Real estate is so expensive these days. Got to save where you can, etc.

But it is black money. It is money owed to the state that is getting cheated. You are fighting to strengthen the state, then we all must pay. If it is too expensive to pay taxes on whole amount, then reduce the tax, but the deals must be transparent and dues paid. Simple.

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Vidyut
Vidyut is a blogger on issues of National interest. Staunch advocate of rights, learning and freedoms. @Vidyut

6 Comments on "How to reduce black money in property deals"

  1. Create Wealth to Create Jobs

    Our current Personal Income Tax slabs are :

    > Up to Rs 2.0 Lakhs………………….. NIL
    > 2.1 Lakh – 5.0 Lakh……………….. 10 %
    > 5.1 Lakh – 10.0 Lakh………………. 20 %
    > More than Rs 10 lakh……………….. 30 %

    That means , the more you earn , the more tax you pay !

    How does this wrong tax regime hurt our economy ?

    This regime ,

    > Punishes honest people

    > Penalizes wealth creation

    > Encourages creation of ” Black Money ”

    > Provides incentive for tax evasion

    > Diverts resources into unproductive assts such as cash/gold/land etc

    > Stops people from working harder / smarter

    With this regime , people tend to ask :

    > Why should I work hard and earn more , if the more I earn the more I
    pay ?

    > Why not evade paying taxes by hiding real income ?

    > How will I ever be able to buy that 1 room flat costing Rs 50 lakhs ? I
    need Rs 20 lakhs by way of black money to buy it ! Where do I get that ?

    > For every rupee that the government collects from me as tax , only 15
    paise come back to me in the form of civic amenities .

    A few years back , the tax regime was worse !

    One ended up paying , by way of tax , Rs 0.93 from every rupee earned !

    And after heaping on the honest tax-payers , all such disincentives , how much does our government collect by way of taxes ?

    > Total Tax Receipts ……………………………….. Rs 12.4 Lakh Crores

    > Personal Income Tax contributes………………..Rs 2.47 Lakh Crores

    Is there a way to raise that Rs 2.47 lakh Crores to Rs 247 Lakh Crores ?

    Can we raise it by 100 FOLD ?

    I am not an Economist ( my advantage ! )

    So , here is my crazy suggestion

    ” Inverse ” the tax slabs as follows :

    > Up to Rs 2 lakhs………………… NIL
    > 2.1 – 5.0 lakhs…………………. 10 %
    > 5.1 – 10 lakhs………………….. 8 %
    > 10.1 – 20 lakhs…………………. 6 %
    > 20.1 – 50 lakhs………………… 5 %
    > 50.1 – 100 lakhs………………… 3 %
    > Above 100 lakhs…………………. 1 %

    What is likely to happen with such ” INVERSE TAXATION ” regime ?

    Following few things :

    > Total personal tax payer base will go up dramatically from current 4
    crores tax-payers

    > Total personal tax collection too , will rise dramatically

    > Today , only 1 % of 4 crores tax payers ( approx 4 lakhs ) , contribute
    nearly 63 % of personal tax revenue ( of Rs 2.47 lakh crores )

    This ratio will change to , may be , 20 % of tax payers !

    > with this ” INVERSE TAX REGIME ” , there will be no incentive to evade
    taxes and to generate ” BLACK MONEY ”

    The more you disclose as your income , the less you pay by way of taxes

    > For a change , we will learn to reward honesty / efficiency / productivity !
    No need to bribe those Income Tax officers !

    > Suddenly , lakhs of crores of BLACK MONEY , stashed away in bank
    lockers / gold / land – and , of course those Swiss bank accounts – will ,
    suddenly become ” WHITE MONEY ” !

    > There will be a huge surge in bank deposits ( – even with , the inevitable
    lower interest rates )

    > Banks will be awash with funds to finance businesses / infrastructure
    projects etc , encouraging entrepreneurs / self-employed to set up new
    businesses ( at 2 % interest rates of loans ) and generate millions of jobs

    > There will be a phenomenal rise in Capital Markets

    Now couple this ” INVERSE TAX REGIME ” , with the following ” TAX FREE ” investment schemes , by creating Special Purpose Vehicles ( SPV ) :

    > NaMo MEGA-CITY SPV

    To implement Narendra Modi’s ambitious project to build 100 smart cities,
    at an investment of Rs 70 lakh crores , in next 5 years

    This project alone will create 5 million new jobs , every year

    > RaGa MEGA – JOBS SPV

    To implement Rahul Gandhi’s equally ambitious project to provide jobs to
    50 million youth over the next 5 years , at an investment of Rs 50 lakh
    crores

    In my opinion , such ” INVERSE TAX REGIME ” , coupled with the above mentioned SPVs , will herald an ” ECONOMIC ECO – SYSTEM “, which,

    > will create jobs

    > shun tax evasion

    > reduce corruption

    > convert all BLACK MONEY into WHITE MONEY

    > channelize these WHITE MONEY into nation-building projects

    To complete this ECO SYSTEM , we need to think ” Out of the Box ” in the matter of Corporate Tax Regime , as well

    Current trend in industry , all over the world , is to

    > Add highly productive , very expensive machinery to ” Automate ” all
    manufacturing processes

    > Reduce manpower by increasing ” Capital / IT Intensity ”

    > Hire low skilled workers by transferring higher ” Skills ” to machinery

    > Outsource manufacturing to countries where manpower is cheap

    > Move out of ” Manufacturing ” and shift to ” Services ”

    India cannot swim against this World-wide Trend

    We must innovate, to not only survive but to grow in this scenario

    Here is my suggestion :

    Set in motion , ” INVERSION of JOB REDUCTION ” regime , under which ,

    ” The more jobs a company creates , the less Corporate Tax it pays ”

    Example :

    > Up to employment of 100 persons …………………………. 30 % tax
    > 101 – 500 persons……………………………………………. 25 %
    > 501 – 1000 persons …………………………………………… 20 %
    > 1001 – 5000 persons ………………………………………….. 15 %
    > 5001 – 10,000 persons …………………………………………. 10 %
    > Above 10,000 persons …………………………………………. 5 %

    Let us celebrate those who provide employment to large number of persons

    Let us celebrate BIGNESS

    Let us create hundreds of WORLD SIZE corporations and take on the World

    On top of this , provide additional tax – breaks ( discounts ? ) to corporate as follows :

    > Average Age of Employees at 30 years………………….. 1 %
    > Ave age at 25 years…………………………………………. 2 %
    > Ave age at 20 years …………………………………………. 3 %

    Of course , very strict and transparent rules will need to be framed to

    compute,

    > Number of Employees ( Permanent – not probationers / trainees )

    > Average Age ( as on 31 March of Tax year )……etc

    But , here is an important aspect of this ,

    ” Incentivize Job Creation ” Scheme

    Today’s labour laws make it extremely difficult – if not impossible – for employers to layoff / retrench workmen , if demand shrinks

    Hence , to take advantage of this Scheme , employers are unlikely to hire thousands of youth , if they cannot easily trim the workforce , to match the shrinking demand

    So , an important corollary of this Scheme is to modify our existing Labour Laws to facilitate layoff / retrenchment , when situation so demands , while protecting the interests of the workmen concerned

    And , last but not the least , permit each and every candidate – and the political parties as well – to spend ANY AMOUNT on election campaigns ,
    without any restrictions as also accept any amount of Corporate Donations
    by cheque

    I rest my case !

    * hemen parekh ( 27 Feb 2014 / Mumbai )

    • Poorer people spend a greater percentage of their income on survival than richer ones this also means that richer people save a larger portion of their income and not the same proportion as poorer ones. All this translates into purchasing capacity. These income tax slabs of yours will have the rich-poor divide exploding so bad as to make currency itself meaningless as an “exchange”. But I do like the idea of incentivising employment. Whether it all can be expressed as taxes is something I am not certain of. However, you are clearly on to something. Perhaps we could spend more thought along these lines.

    • Taxes cannot be decided just to facilitate governance and finance of society. There has to be some justice to these taxes – an underlying cause and a reason. Otherwise nobody is going to accept them. This is where it will fail – because it does not have an underlying natural basis to it.
      If deciding taxes was so easy, all we needed to do was play a few simulation games to see which tax system will bring more sims … I mean rupees to government. However, in real life the real solutions cannot be decided merely by convenience.

  2. Vidyut thanks for writing this article. Just recently I was in Gujarat and wanted to explore the rates of shops. The going rate in Gujarat that I was told was 60% black and 40%white for commercial property. On talking to builder I was told that othre than saving tax lot of money goes in bribe to get the land converted to “Non Agriculture” and to get the plan passed by the authorities. I feel that this “Non Agriculture” thing is very corrouption attracting thing as it is very subjective. Apparently you are supposed to show that it is waste land and agriculture cannot happen on that land. It would be interesting to get the stat on how much land does a state government convert from agriculture to non agriculture, which would give the indication.

  3. Most important factor for generation of black money is income tax. Is if fair that a citizen pay 30% 9n his income besides all the indirect taxes when most of it will go into the pockets of corrupt. It would be a far greater service to the nation to generate black money instead of filling up the pockets of the corrupt.

  4. The main problem for country as a whole is not black money itself but the side effects of black money.
    Also black money outside the country is more harmful as no asset has been brought in the country for that money. Black money which is inside the country is somewhat smaller problem – but its side effects that it brings in inequality and leaves a section of society vulnerable should be addressed first.

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