Study details forex gains from black money recovery

Even if half the black money parked by Indians in Swiss banks is unearthed and brought back to India, it could add $30-35 billion to forex reserves, Bank of America-Merrill Lynch (BoFA- ML) said in a note to clients on Wednesday.

BoFA-ML economists Indranil Sen Gupta and Abhishek Gupta said they had worked with an estimate of about $200 billion in capital flight based on a recent research study and had assumed it would be taxed at around 30-35%.

“We estimate that the government can add US$30-35bn to FX reserves, over time, if it is able to unearth some of Indians’ ‘black money’ abroad,” the analysts wrote.

“If even half of this ($200 billion) is unearthed and taxed at 30-35%, this could add three to four months of current import cover to FX reserves, over time, when import cover is running low at 8.3 months,” they added.

According to the note, the Modi government is unlikely to announce a tax amnesty scheme to bring back the black money stashed in Swiss banks; it cited a statement to that effect made by Nirmala Sitharaman, minister of state for finance, in Parliament.

India has in the past announced several amnesty schemes to allow citizens to disclose their untaxed money after paying the prevailing income tax.

The 1997 voluntary disclosure of income scheme taxed such money at 30% for individuals and 35% for corporate entities. The BoFA-ML economists pointed that such schemes over the years had raised tax revenue of 0.1% to 0.6% of GDP.

“In our view, VDIS schemes discriminate against the honest tax payer, although they allow the government to quickly raise revenue,” BoFA-ML said.

Meanwhile, the central government on Wednesday gave the Supreme Court a list of 627 bank accounts held by Indians in Geneva, Switzerland.

The information, given to the Indian government by France in 2011, was handed over in a sealed envelope. Attorney general Mukul Rohatgi told reporters later that more than half the names in the list were of Indian residents and the rest were of non-resident Indians (NRIs) who do not pay taxes in India.