The Telegraph
Since 1st March, 1999
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- Chidambaram's tax will be like wearing a chastity belt in a brothel

It used to be a joke in the Calcutta high court that it was a good job that Pesi Ginwala, the octogenarian barrister-at-law (Charterhouse, Balliol and Inner Temple) who has now retired to Bombay, didn't smoke. Had he done so, he would have insisted on paying the Old Post Office Street paanwallah by account-payee cheque. That might have warmed the cockles of Palaniappan Chidambaram's heart as he tilts at the towering windmills of black money, but whether Ginwala's vendor would have accepted such an instrument is another matter altogether.

It takes two to tango. Also, small traders can afford to be picky, witness the tale of that other paanwallah, this time in Park Street, whom the Park Hotel supposedly offered a lakh of rupees to find a perch somewhere else. According to that legend, the man turned round and offered the Paul brothers three lakhs to do the same. Needless to say, neither offer can have entailed payment by account-payee cheque.

Cash is a way of life in India, Asia's fourth most corrupt country according to Political and Economic Risk Consultancy Limited. Those who cried 'Hallelujah!' in 1991 when Manmohan Singh slashed the book of trade rules from 850 pages to 87 forgot that more business would mean more cash. Enhanced foreign direct investment, new areas of operations and more collaboration hugely enlarged the scope for 'speed money'. Pious references to American legislation against bribery refuse to acknowledge that multinationals are a law unto themselves. They also adjust quickly to the climate in which they operate.

No Lok Sabha member ' not even the most virtuous of finance ministers ' ever wins an election on the straight and narrow. Remember the young Atal Bihari Vajpayee lamenting that every legislator starts his career with the lie of false election returns' Similarly, no one buys property for only the recorded price. Changing skylines speak of a nationwide building boom that, like economic globalization, also means much more untraceable liquidity. With the thriving breed of promoters demanding at least 40 per cent payment in cash, middle-class employees who seek a roof over the head suffer the anguish of watching a lifetime's savings disappear as white is transformed into black.

Having the kitchen redone at home means almost daily pilgrimages to the ATM, which is a wonderful device when it doesn't swallow up your card. Since Chidambaram's innovation might add 0.1 per cent to the renovation cost, we thought of passing it on to the mistries. But the contractor wouldn't hear of it. 'We agreed on a price,' he retorted, 'and you must stick to it.' A sudden brainwave, inspired by the budget's high ethical motivation, prompted us to counter that nothing was said about mode of payment. Transparency being of the essence of an honest society, we announced triumphantly that we would pay by cheque. Account payee too, as Ginwala would have done.

The contractor looked pained with the look of a man grown weary in the ways of the world. He knew that a lawyer was representing us against the corporation's extortionate house tax. He had seen our doctor. 'I am only a humble mistry,' he pleaded. 'Who am I to object to what my betters think is right' If the vakil sahib and doctor sahib accept cheque payment, so will I!' I recalled another doctor, an eminent surgeon, who emerged blood spattered from the operating theatre where he was at work on my brother, then only a boy, to snap 'Brought it' at my anxiously waiting mother. He shoved the wad of notes she produced into his pocket and disappeared into the operating theatre without another word.

Britain's Chancellor of the Exchequer is trying to get his hands on more than '100 billion generated in black by the false tax returns of self-employed people who account for 12 per cent of the gross domestic product. I can believe it after watching a friend with whom I was staying in London have a new boiler installed. It cost a pretty penny and value-added tax at 17.5 per cent further inflated the bill. But as Winston Churchill remarked, every legislation invites its own loopholes, and a thousand laws destroy all respect for the law. And so my English host casually remarked to the plumber that since he did not believe in paperwork, they needn't bother with a receipt. The plumber knew exactly what he meant. 'We'll skip the VAT then,' he said, and an exchange of broad grins sealed the pact. Payment was in cash.

Chidambaram should also know about the sequel. Britain has abolished bearer cheques. All cheques come ready printed with two diagonal lines and 'A/c payee' between them. Apparently, this is to prevent money-laundering. As reports from Iraq and releases from the Guantanamo Bay camp bear out, some fierce young British Muslims have links with fundamentalist organizations abroad. Hence the precaution.

Churchill again, the print on a cheque stops nothing. Half a century ago when I was an impoverished student in England, there was a two-pence stamp duty on cheques of more than two pounds. The kindly old manager of the long-defunct Williams Deacons Bank spared me that charge. His ingenious strategy was that I should write out a cheque for '1-19-11d (12 pence to a shilling then, 20 shillings to the pound) when I needed money, and he would give me two crisp pound notes in exchange for a penny. That way, I saved the twopence stamp duty.

Think what would happen to Chidambaram's ruling if every bank clerk in India were to take a similarly kindly view of the customer's plight! Being India, they would probably want to split the saving, like the commission that insurance agents and investment brokers share with clients.

I discovered a further new device in Britain to stop (or so they think!) money-laundering when the plumber drove my friend ' with me accompanying them ' to the bank to draw the cash for the boiler. ATMs there won't, for love or money, dispense more than '300 per day per person. The boiler cost a couple of thousand. Since cheques can't be cashed at the counter either ' for the same reason as the 'A/c payee' stipulation and ATM restriction ' my friend had to fill in a form for the amount he wanted. 'Reason' the teller asked and while my friend hesitated, I blurted out, 'The plumbers', and received a hard kick in the shin below the counter.

The teller smiled knowingly and counted out the money. But as we left the bank, my friend turned on me and snarled, 'You stupid fool! You let her know that I am paying cash and avoiding VAT!' My defence was simple. The knowledge made no difference.

Black money is said to be just over 10 per cent of Britain's GDP. In India, it was 21 per cent in 1991, according to the National Institute of Public Finance and Policy. More recently, a former chief vigilance commissioner, N. Vittal, said it had swollen to 40 per cent. No wonder ' the economy is booming. The hoards secreted away in Switzerland, Luxembourg, the Bahamas, Cayman Islands, Gibraltar and elsewhere are estimated at more than $150 billion. Some argue that it's this parallel economy that keeps India going. Even if the figure does not grow with burgeoning prosperity, how will Chidambaram's measures affect funds of this magnitude'

True, the government needs to mop up black money for its own neglected welfare spending. But even if the threshold is raised to Rs 50,000 and the tax increased, the big boys who finance all political parties are unlikely to draw modest sums from a bank or buy bank drafts. Like income tax, these transactions are confined to middle-class wage-earners. To adapt the late Nikhil Chakravarty's comment in another context, Chidambaram's tax will be like wearing a chastity belt in a brothel.

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