Change for the better
Source: By Swapan Dasgupta: The Telegraph
Many countries, particularly in Europe, have a facility to enable short- term visitors to reclaim the tax they have paid for their shopping. To avail of this facility, visitors are given a stamped form by the retail establishment where they have made the purchase which they submit to the customs at the airport before departing. The tax (minus a service charge) is then either collected in cash or deposited into their credit card. Apart from the long queues in airports such as Heathrow, this is an efficient and relatively hassle- free system of buying duty- free goods. The system also operates on trust and the understanding is that goods once taken out of the country won't be re- imported.
Many years ago, a long- term Indian resident of the United Kingdom explained to me a very simple way of subverting the system. A resident, who is not entitled to the taxfree facility, catches hold of a tourist, usually a relative. He then makes his purchase and secures a tax- free form. The goods are dutifully packed into the tourist's bag and taken to the customs counter which, in one or two Heathrow terminals, is located before the check- in counters.
The customs officer checks the goods and stamps the form. If the refund is to a credit card and the queues are long, even the perfunctory examination is dispensed with. The tourist then hands over the goods to the resident who says a grateful goodbye and departs. The tourist then checks in his bags and departs, minus the dutiable goods, which remain in the country.
I don't know the estimated quantum of this fiddle or whether it makes economic sense for cash- strapped UK government to hire more officers to police the system better. However, when I explained this fiddle to a native Briton some years later, he was aghast. It is not merely that he was surprised at how easy it was to cheat the system for, admittedly, modest gains. What struck me more is that he had never even contemplated breaking the law and exposing himself to a cheating charge.
This is a very small example of a cheating exercise. Many Indians can no doubt cite better examples of equally simple ploys that have resulted in the exchequer being short- changed by vastly larger sums of money. But the idea is not to identify potential loopholes in a system that can be exploited by those out to make a dishonest buck.
What is far more significant in my view is that there is a very large body of Indians, who seem quite incapable of playing with a straight bat. Their instinctive response to any situation is to look for ways to beat the system. In the more evolved countries, accountants and lawyers are obliged by strict professional standards to keep within the law and advise their clients accordingly.
In India, alas, the reputation of many professionals has been built on the strength of their ability to subvert the system. The accountant whose ' contacts' in the local income tax or excise departments is formidable and the lawyer whose main skill is to ' fix' the judicial system are much sought after and have a lucrative practice. This week, the tax authorities in Delhi raided a legal firm that was overflowing with the much- sought- after new currency. Yet, most of the eminent lawyers I spoke to had either never heard of the partners of the firm or were clueless about their practice.
In India, a premium is attached to the fixers. Had the amount of creative time used in trying to discover innovative ways to beat the system been used for something more worthwhile, our country would perhaps not have been perceived as merely ' emerging'. The reasons for this unfortunate celebration of deviousness go back to the days of the East India Company. On paper, and before 1833, the Company had a notional ' monopoly' of trade in the territories under its control. However, this was effortlessly subverted by the private trade carried out by its own functionaries with, naturally, the assistance of Indians. The corruption and venality the Company's officials injected into society outlived its dissolution and the direct rule of the Crown. The corruption game received a big boost during World War II when Indian contractors made an absolute killing and took full advantage of a beleaguered administration.
After Independence, the shortage economy and ham- handed government attempts at over- regulation coupled with the punitive rates of income tax, particularly during the high noon of Indira Gandhi's socialism, exacerbated the trends. By the time the liberalization process began, dishonesty had become a part of the Indian way.
Lord Curzon's provocative assertion at the Calcutta University convocation of 1905 that "truth took a high place in the moral codes of the West before it had been similarly honoured in the East" may have been excessively flattering to the Occident but it wasn't devoid of all connection with the Indian reality.
Ideally, the rationalization of personal taxes and the greater space given to private enterprise should have brought in a large measure of correction. Alas, the mindset decay had infected the body. Take the real estate sector as an example. Over the years, the rates of capital gain tax have been made extremely competitive but the practice of taking at least half the proceeds in cash has persisted. A few months ago, when I offered my credit card for a modest Rs 2,000 purchase of a light fitting in Delhi's Khan Market, the shopkeeper retorted sarcastically: " so you are interested in building roads?" It could be argued that tales of government profligacy and corruption have lessened the average citizens' desire to be completely transparent in their financial dealings, except when, like the salaried classes, they have no choice in the matter.
However, the urge to see less government — a legitimate conservative and even libertarian impulse — is offset by a political culture that demands a greater official role in infrastructure spending and social welfare. There is a striking mismatch between the expectation from government and private moral codes. This mismatch has come to the fore in the carefully orchestrated outrage over demonetization.
Whether demonetization has succeeded in lessening the quantum of the cash economy (which also includes a black economy crafted on dishonesty and evasion) will be known soon. However, the suggestion that just because a project is daunting and just because it runs counter to a nasty national habit it shouldn't be attempted at all is spurious. There are times in history when it becomes necessary to force change, even in a democracy, by wielding a stick.
Yes, it is true that some of the efficacy of demonetization has been blunted by the same innovative powers of evasion that have characterized India. Some bank managers have betrayed public trust and ended up as partners in the elaborate game of laundering black money. Some Jan Dhan Yojana accounts, aimed at bringing modern banking to the poorest, have been misused. And some political parties have provided covering fire to those who want to defeat the main purpose of demonetization.
Yet, given the sheer magnitude of the project, this is one of the most audacious projects ever undertaken by a political leadership. Reining in black money, enlarging the tax net and working towards a digital future are worthwhile economic objectives. Far loftier is the bid to make India a more honest place and force all Indians to think straight. That is the real challenge.
