Dr Swamy replied to a volley of questions on a wide range of issues like black money, hawala, taxation, Rafale deal, real estate registration costs and politics with his characteristic humour and candour
Dr Subramanian Swamy, arguably India's most fearless politician and a renowned economist was at his best while replying to a volley of questions ranging from black money, taxation, hawala to politics. A packed audience comprising eminent lawyers, chartered accountants, senior consultants and citizens saluted his courage to be ‘politically incorrect’ by giving him a spontaneous standing ovation. He was speaking at a seminar on the Black Money Bill organised by Moneylife Foundation in Mumbai.
Here is a selection of questions from the audience and Dr Swamy’s replies.
Anil Harish (eminent lawyer, investment and taxation expert): India historically has very high income tax rates and that was perhaps the time when maximum amount of money went out of the country for two reasons. One to avoid tax here, what you call as evade tax, and second because foreign exchange regulations were so tight. So historically, the money had been going outside India. If one were to go through the measures you have suggested, do you not think that it will take a very long time since other countries also have voluntary disclosure schemes such as US has Fbar scheme. They are able to get in a lot of money there, I know, because many persons in the US, consulted us and they disclosed and paid the tax. Do you think the method that you have suggested will be more effective and practical than a law such as this, in terms of time and in terms of quantum of money? Because all of us are interested in the money coming back. It is much better for the country. Yet we have to find a most practical way.
Dr Swamy: Well, the practical way should not penalise honest taxpayer. There are large number of honest taxpayers in our country, who go through great deal of harassment but still continue to pay the tax. In a sense, what you are doing is rewarding those who had violated the law. And this is not even a plea bargain. They are only going to tell us who else has the black money, many of them know. They are only going to get relief. There is no assurance they would not do it again. The trigger is to do with the fact of high tax rates. Even today, the tax rates, in my opinion, are unacceptably high. We have a need to have a much higher savings and if you abolish income tax, there would less paperwork, which is there due to the exemptions. If you abolish the income tax, then you begin the new process where fresh generation of black money is going to be discouraged as a consequence.
Second is how much time did they take for Hosni Mubarak's accounts to be seized? They took seven months. Same thing with Gadhafi. In case of Marcos, it took a year and a half and that was 1991-92. Things have become much tougher because of this terrorist financing, and the US is very sensitive to this. Therefore, I think we should not go for a system where we are lenient to those who broke the law.
In India, we appear to be lenient to those who break the law to the extent that those who adhere to the law are found to be silly. It is imperative that India's black money be brought back and a big chunk of it should go into savings and investment in the Indian economy.
Black money is a severe problem and Indian can go to the extent of abolishing income tax to solve the black money problem.
Xerxes Dastur: The cost of tax collection is very high. The procedures are severe. Recently introduced 14-page Saral income tax return form (and taken back by the government for re-work/ re-design) is very complicated. The complete form for income tax return may be even more complicated. Will the government help the honest taxpayer by simplifying matters?
Dr Swamy: There should be a national demand from the public – a national movement – to abolish income tax. It taxes predominantly urban middle class and young professional class. In rural areas, agricultural income is not taxed. Rich people anyway have chartered accountants (aside – not like the chartered accountant, who is asking the question). The ordinary taxpayer is the one who goes through hell in adhering to the law. Abolition of income tax will have a salutary effect on the rate of savings and investment in the Indian economy. Britain had done so to encourage its Industrial Revolution during the period 1816-1842.
Ameet Patel (CA & Partner, Manohar Chowdhry & Associates): The Black Money Bill asks those with black money to come forward and disclose it. The filled declaration will be treated as information and not as evidence to prosecute. Why is Prevention of Money Laundering Act (PMLA) excluded from the list of laws for which it will not be used as evidence?
Dr Swamy: Black money, which violates the Act can lead to attachment of property under PMLA. This is a powerful deterrent against generation of black money.
Question: Since there seems to be a cartel amongst all the political parties in the country, is the Black Money Bill just fire and brimstone, or will there be any tangible action?
Dr Swamy: The Bharatiya Janata Party (BJP) is not in any cartel. There will be tangible action. Even when the 2G scam was being investigated, there was a fear that it would not lead to action. Justice Ganguly and Justice Singhvi changed the whole course of the country and there has been strict action on wrongdoers. However, in the case of black money, there is no need for a public interest litigation (PIL). PIL is sustainable in Court only if the government does not perform its statutory duty or if the policy itself is arbitrary or unreasonable. When the government is working on it, courts cannot intervene. There will be action taken by the government in the black money case.
Question: In the defence purchase plan, what will you be doing about the Rafale aircraft that are going to be purchased from France?
Dr Swamy: The government has immediately responded to what I have said. The old deal as envisaged is being scrapped. It was a deal between Sonia Gandhi and Nicolas Sarkozy (then President of France). No country was buying the old Rafale aircraft, as the radar was old and the fuel consumption too high. I met Defence Minister, Manohar Parrikar, and the old deal has been closed. The bribe taken in this regard may have to be returned by the Indian wrongdoers. In the new situation, India will buy 36 aircraft, which will be built in France. It will have a new radar. It will take two years for India to acquire the modern aircraft. There is no corruption now. There will be no PIL from my end. My work is done.
Question: What is your view on black money generated in the real estate sector?
Dr Swamy: This is the toughest question. In the real estate sector, there are problems of stamp duty, and registration fees, which are paid by the public at a lower value. Undervaluation of property for this is a problem. All these government fees/ duty should be abolished. The market should be operating freely for buying and selling. If there is a major overhaul, black money will not be generated in the real estate sector.
Question: Are you disappointed with the BJP government in its handling of the black money problem?
Dr Swamy: The BJP can do the work. It does not have any of the inherent problems of the Samajwadi Party or the Congress Party. There are four years to go for the BJP government and it will go to the extent of recovering the black money. I am not disappointed now. If I am invited again next year, I will let you know if I am disappointed at that stage.
Question: Are politicians themselves involved in generating black money? Are NGOs and trusts of politicians doing these things?
Dr Swamy: That is not correct. Politicians are not doing it. Where politicians are involved in commercial transactions, the government should see if there is any wrongdoing. Let us start by generating some enthusiasm. Income tax should be abolished. The public can even be asked to donate to run the government. If we work one-step at a time, corruption will go, and black money will not be generated.
If you ask me how many politicians, who are members of Parliament, are honest, the answer is 75%. During the elections, it is possible for money to be an issue. If the party leader gives money to the MP, at the time of election, it is a problem. If the party leader is corrupt, it is a problem. If we work on corruption and black money, the problem will be solved and honest people will be able to stand on their own feet.
Question: Is the current Finance Minister not doing enough and is he Congress-like?
Dr Swamy: The Finance Minister is a brilliant lawyer and he works hard with a different approach. The Reserve Bank of India (RBI) Governor should have been sacked for making the cost of capital so high that the manufacturing sector is affected adversely. RBI has increased interest rates to control inflation at too severe a level and this is not correct. If we say the patient’s temperature can be brought down by killing him, it is a severe approach. RBI’s inflation control measures have been severe. However, the Finance Minister is continuing with the same RBI Governor. The Finance Minister has no malafide intent and he is doing his best.
Question: Why is there no action taken against NDTV and P Chidambaram?
Dr Swamy: There is no tax evasion issue against NDTV. NDTV is not a severe case. P Chidambaram is also not being punished correctly. I have only 24 hours to work in a day. There are more severe cases like Aircel-Maxis and Swan-Etisalat deal.
Question: Has there been the hurried induction of a Judge in the SIT, who is close to Sonia Gandhi?
Dr Swamy: This is for the Supreme Court to decide. There can be custodial interrogation. The SC judges are receptive to my getting into the case. However, the court must decide. No comments from me.
Question: Is the underworld involved in the black money problem?
Dr Swamy: The underworld is not involved. There are hawala agents involved which is illegal. These agents can route the money abroad through Dubai. In Dubai, names of the Indians are revealed to banks abroad.
The Inter-Services Intelligence (ISI) of Pakistan is involved to the extent of having the information. Pakistan has an idea on which Indian politician and how much money and in which bank it is stored as black money abroad. This is dangerous to India.
The government must first arrest all the hawala agents. The government must work on the problem of money being sent abroad.
Question: There is a problem of black money within India and the government must deal with it first. What are your views?
Dr Swamy: I am outside the government. There are priorities in investment and this is because the rate of return of a business dealing in luxury items is high. On the contrary, an ordinary business generates a lower rate of return. This leads to wrong priorities and black money generation. The economic impact of black money is severe and the public must express its anger in a concrete way.
Question: Does the government need to go after the FIIs to solve the black money problem? Also, you views on the Hassan Ali case?
Dr Swamy: The answer is needed from the government and the Prime Minister. In the Hassan Ali case, the Supreme Court is looking into it. The outcome will not affect our party. It may affect friends in other parties. Is he fronting for somebody and for whom? I am not in a position to give an early response.
Question: Will there be Rs15 lakh more in everybody’s bank account, when the black money has been recovered?
Dr Swamy: This is just a joke. The Prime Minister (Narendra Modi) has not promised it. The next time I meet him, I will tell him. Two woman lawyers in the Supreme Court also asked me about this. As they were members of the Congress Party, I told them to get their share by asking Sonia Gandhi.
Question: Are co-operative banks also a part of the black money problem? Co-operative banks have dual regulation and are a common instrument in the hands of those who have black money. Many politicians have started their own co-operative bank.
Dr Swamy: Co-operative banks are a part of the problem and not the problem by themselves. When there is an epidemic, you have to go to the root of the problem. We just have a mental attitude that corruption is all right.
This Black Money Bill is not sufficient for elimination of black money.
Question: Are religious organisations and trusts also part of the black money problem?
Dr Swamy: I am a believer in the renaissance of the Hindu religion. So far, religious organisations and trusts are not a problem. Where there are exceptions, please write to the Special Investigation Team (SIT). If you write to me, I will look into it and send it to the SIT.
Dr Subramanian Swamy gave an elaborative speech on the Black Money Bill to a standing ovation from an overflowing audience while speaking at a seminar organised by Moneylife Foundation in Mumbai
Dr Subramanian Swamy, the leader of Bharatiya Janata Party (BJP) said, "The Black Money Bill tabled in the Parliament is not sufficient to eliminate the problem. In addition, there is nothing in the Bill on bringing back black money in India". He was speaking on the new Black Money Bill tabled last month in the Parliament.
The KC College auditorium where the programme took place was filled to the capacity. The attendees included many eminent lawyers, chartered accountants and senior consultants as well.
Dr Swamy while elaborating on how the black money can be used, said, corruption had affected the economy, politics and national security. He said, " Start catching big people, whose information is available with the Enforcement Directorate (ED) and who are involved in this black money business. This will have a deterrent effect for other people and the population would become honest sooner than later."
"Apart from bringing back the black money we need to prevent its creation. Abolishing participatory notes (P-Notes), personal income tax (I-T) and registration charges for real estate is one of the ways to curb creation of black money." Dr Swamy said.
The Black Money Bill, tabled in the Lok Sabha last month, provides a short window to income tax assesses to declare assets, pay tax and penalty and avoid imprisonment. The Black Money Bill appears simple and comprehensive. It has adopted a carrot-and-stick approach. It provides a limited, one-time compliance opportunity to come clean on payment of a gross tax of 30% and an equal penalty.
The Narendra Modi government proposes to make the Bill effective from the assessment year starting April 2016. The Foreign Income and Undisclosed Assets (Imposition of New Tax) Bill, 2015 provides for a maximum of 10 years rigorous imprisonment for offenders who evade taxes in relation to foreign assets.
As per the Bill, concealment of foreign income and assets will be non-compoundable and offenders will not be permitted to approach the Settlement Commission for resolving disputes. There will also be a penalty at the rate of 300% of taxes on the concealed income and assets. The Bill seeks to make non-filing of income tax returns or filing returns with inadequate disclosure of foreign assets liable for prosecution with punishment of rigorous imprisonment up to seven years.
However, the Black Money Bill does not seems to cover everything that it should. For example, there is no direct mention about those who have become citizens of countries like Macedonia, Bulgaria, Montenegro and Romania but continue to live and operate in India like Indian citizens. In addition, the definition of what is ‘normally resident in India’ and what constitutes ‘place of effective management’ and its interpretation is not clear enough. If tax officials are allowed to decide this at their discretion, it could have serious implications for foreign companies with significant Indian operations. Not to forgot the powers that the revenue authorities may obtain after the passage of the Bill.
Dr Swamy said, "I agree that the Bill contains some harshness and based on assumptions powers may be misused by revenue officials. The Bill is more like an I-T Bill and a de-facto amnesty scheme. The amnesty would also be dropped and in the end it will be just empowerment of I-T officials."
Earlier in a Facebook post, Dr Swamy had said investing black money in Indian markets creates inflation. "The market has started to focus mostly on luxury goods and premium segment services; leaving the underprivileged out. The high realty prices and inflation are all symptomatic of this trend," he added.
According to the former cabinet minister, some of the black money is sent abroad, while some kept here in India and spent on buying and developing land, especially for building luxurious houses with Italian marble. Another way to spend black money was through participatory notes (P-Notes), where money deposited abroad is brought back to Reserve Bank of India as P-Notes and invested in the stock markets.
P-Notes have been accounting for mostly 15-20% of the total foreign institutional investors (FIIs) holdings in India since 2009, while it used to be much higher, in the range of 25-40% in 2008. It was as high as over 50% at the peak of Indian stock market bull run in 2007.
According to the data released by Securities and Exchange Board of India (SEBI), investments into markets through P-Notes surged to the highest level in over seven years at Rs2.72 lakh crore (over $43 billion) in March 2015. The total value of P-Note investments in Indian markets (equity, debt and derivatives) rose to Rs2,72,078 crore at the end of March from Rs2,71,752 crore in the preceding month, the data says.
Few years ago, the BJP leader had claimed that "black money is no more in Swiss banks". However, no one believed him at that time.
He said, the Indian government does not have names of Indians holding accounts abroad illegally except in the case of two banks. This data is also shared by other countries. However, the ED has vast amount of intelligence about black money, which is not even being used by the government. "Give me appropriate power, control over the ED and other agencies and I will get all the black money stashed abroad in two months," the BJP leader said adding that many in the echelon of power from across the parties may not like it if this really happens.
Dr Swamy said the best way forward was to take recourse to the United Nations Convention on Corruption to instruct the tax havens to cooperate. He recalled that in October 2014 he had written to Prime Minister Modi listing six steps through which the government could bring back black money, pegging the amount at about Rs1.2 lakh crore.
He suggested an ordinance declaring all illicit wealth stashed away abroad in tax havens as national wealth. “Under the United Nations Convention on Corruption, each of the countries can be directed to transfer the money back. We anyway have a lot of ordinances. So one more will not matter. I do not think anybody in the Parliament will oppose that...the UN will support you on this and it can be enforced. By this, you would be able to, within 2-3 years, get all the black money,” Dr Swamy added.
According to White Paper on Black Money in India report, published in May 2012, Swiss National Bank estimates that the total amount of deposits in all Swiss banks by citizens of India were 1.945 billion Swiss Francs
(about Rs9,295 crore) at the end of 2010. The Swiss Ministry of External Affairs has confirmed these figures upon request for information by the Indian Ministry of External Affairs. This amount is about 700 fold less than the alleged $1.4 trillion in some media reports.
Main features of the Bill
• Maximum of 10 years rigorous imprisonment for offenders who evade taxes on foreign assets.
• Penalty at the rate of 300% of taxes on the concealed income and assets.
• Income from any undisclosed foreign asset or undisclosed income from any foreign asset will be taxable at the maximum marginal rate.
• Beneficiary of foreign assets will be mandatorily required to file return, even if there is no taxable income.
• Non-filing of income tax returns or filing or returns with inadequate disclosure of foreign assets liable for prosecution with punishment of rigorous imprisonment up to 7 years.
Moneylife Foundation continued its successful series on financial literacy with its flagship seminar in Pune, the seventh time in that city
Moneylife Foundation conducted yet another successful, educative and highly interactive seminar - ”Be Safe and Smart with Your Money” in Pune, after a long gap of almost two years. This was the seventh Moneylife Foundation event conducted in Pune since 2010. The event, which witnessed a packed audience, was held at the Mahratta Chamber of Commerce Industries & Agriculture (MCCIA).
The flagship seminar has two distinct sessions separated by a tea break. The first is by Sucheta Dalal, managing editor of Moneylife and founder trustee of Moneylife Foundation. The next session is by Debashis Basu, editor and founder trustee of Moneylife Foundation.
How to Be Safe With Your Money
Ms Dalal’s session was titled ‘How to Be Safe with Your Money’. Ms Dalal started by pointing out that financial products are fundamentally different from consumer products. You can test-drive a car but you cannot test-drive a mutual fund; the fate of your investment becomes clear only after a year or more. Moreover, in the real world brand names mean something. Not so in financial world. However, people translate their experience of buying consumer products into financial world and later repent their decision.
Advising investors to see through the sales pitch, Ms Dalal said. Companies need to sell products and services to earn money, the media focusses on advertising revenues and may not hesitate selling news, while the intermediaries are concerned about their commission and sales target. Therefore, the buyer needs to see through this sales pitch and chose the financial product based on six mantras.
The six mantras, articulated by Ms Dalal, include - not to lose money, insure for securing future, avoid credit and investment traps, focus on few safe products, avoid emotional traps and maintain financial hygiene.
large section of her presentation was focused on how not to lose money. Many people unfortunately fall for pyramid schemes that promise extraordinary returns. Unfortunately, "Smart people are easier to cheat," she noted, adding, "high-achieving professionals are often defrauded."
Many have lost huge amounts of money in pyramid, MLM, chain marketing and chit funds such as Herbalife, Amway, Saradha, Rose Valley, SpeakAsia, Gold Quest or Qnet. There are various chain marketing schemes which operate at every level in the country and cheat even the poorest of people. Moneylife has consistently written about these schemes. "The main danger of all such schemes is, those early entrants, who earned high returns initially, usually re-invest all money in the scheme and eventually lose everything when the scheme collapses," she said.
Ms Dalal then cautioned the audience about internet scams - mainly email traps, like the lottery scam, being sent out in the name of Reserve Bank of India, its governors, wife of Raj Rajrathnam and so on. Then there are job scams, where people are offered the 'so-called jobs' in top companies. However, any respondents to such emails end up losing their money.
She also advised the audience against falling prey to phishing and vishing scams. While phishing relates to an email that appears to be sent from banks, seeking verification PIN, password, date of birth and account details, in vishing, the scamsters call on the mobile number of the account holder and ask for such details.
Several times, people, who have no knowledge about stock markets, are lured with promises of huge returns in shortest possible time. Trading schemes, like Nifty trades, Forex derivatives and oil futures, all have brought grief to investors, and investors should stay away from such offers, she said.
Ms Dalal advised participants to stay away from plantation schemes, art funds and realty companies offering high returns on deposits. Any scheme offering 3% more than deposit rate should be a red flag. She also spoke about the various internet scams that are usually after your money or your identity. Ms Dalal also touched upon some factors to keep in mind while dealing with credit cards, insurance and credit scores.
How to bank safely? When it comes to choosing a bank, she cautioned the audience against falling for small cooperative banks. As for private banks, Ms Dalal pointed out said that relationship managers usually work only to earn themselves fat commissions from your investments. Thus many “relationship managers” resort to mis-selling or hard selling a product. If you do buy anything from them, have all your communication documented.
In another example, well-known singer-actress Suchitra Krishnamoorthy was looted by HSBC bank for five years by promising an extravagant assured return of 24% from mutual funds as well as insurance. Moneylife Foundation relentlessly pursued the case for over two years and finally, HSBC Bank agreed to settle the issue and repaid her Rs1.37 crore.
One should be careful while investing one’s money in fixed deposits, she said. Bank deposits are usually safe but corporate deposits should be inspected carefully before investing. “Do not go for any deposit which does not have a legitimate credit rating,” said Ms Dalal. And most importantly, if the interest offered is 3% higher than bank fixed deposits, one should stay away.
Talking about insurance, Ms Dalal, said, we Indians do not like to insure thinking that it is waste of money in case there is no claim. "Insurance is not an investment. It should be treated as money that is kept for unforeseen contingencies," she said.
Ms Dalal then gave some tips on keeping one's money safe. It includes, registering mobile number with service providers to get transaction and payment alerts and looking out for small charges on unnecessary services.
Several people want to have a credit card and do not even read the terms and conditions, especially the interest rates and charges that are usually in the range of 40% to 65%. Another point to keep in mind is that one should not use credit card to withdraw cash, as this is termed as instant loan and needs to be paid separately. Even in the part repayment, the cash (withdrawn) is adjusted last, she added.
Ms Dalal, explained credit history, credit score and reports which are becoming increasingly important. She said, all your borrowings and repayments for credit card, student or education loan and other loans, are tracked by credit information companies, like CIBIL, Experian, CRIF Highmark and Equifax.
Payment history, amounts owned, length of credit history, new credit and types of credit used, are some of the factors that affects ones credit score. The credit history remains with the credit bureaus for seven years and any default can affect one's future borrowings, Ms Dalal added.
How to be Smart with Your Money
In the second session, ‘Be Smart with Your Money’, Debashis Basu, editor & publisher of Moneylife and founder trustee of Moneylife Foundation, took the audience through simple steps for investing smartly. To start with, he suggested saving at least 25% of your income. While Indians save a lot, they keep their money safe in bank deposits. Unfortunately, this is just the wrong thing to do especially for those who are in the highest tax bracket.
Usually we have different financial goals, such as saving on taxes, buying a house, child’s education etc. Mr Basu explained the different financial products available which can help meet these goals. Further, he explained the risk and returns associated with each financial investment. Most people don’t see the huge risk of inflation eating away their wealth. Mr Basu asked the audience to calculate everything in post-tax and post-inflation basis. He also took the audience through the pluses and minuses of different asset classes such as fixed income, gold, real estate, stocks/equity mutual funds and insurance. Most Indians prefer to invest in gold and real estate. Mr Basu pointed out that most investors don’t know what influences gold prices and this makes gold investing more of a speculation. He explained that the price of gold is driven by the six factors (mainly the movement of the dollar and rupee). The investors are unaware of any of them. On real estate, Mr Basu pointed out that we really don’t know the returns we would get from our real estate investments because not enough data is available.
Stocks and equity mutual fund schemes are the best route for long term wealth creation, based on past data. This is because well-managed businesses create profits which get reflected in the stock prices. But by nature, stock investments are volatile. They may decline sharply if they are overvalued. If you really want to gain from the enormous wealth that stocks and funds can create, you have to understand this and stay patiently invested in good funds or a bunch of good stocks, advised Mr Basu. Apart from the returns, Mr Basu explained the risks involved in various asset classes.
The three and a half hour session concluded with a lively question and answer session. To know about future sessions, please register as a Moneylife Foundation member here