Given the budget has projected a revenue of Rs 9.8 lakh crore from corporate/income tax receipts for FY18, the fact that the government is examining Rs 2.8 lakh crore of suspicious deposits is promising. That, of course, assumes the taxman will be able to prove the deposits are black money—and not the cash sales that most firms/individuals seem to have declared was the source of the money—and collect taxes on them. The taxman’s track record when it comes to proving tax demands, though, has been quite poor in the past, so it would be premature to assume that most of this will be subject to a tax. But even if the entire amount is assumed to be black money, it amounts to just around 1.7% of today’s GDP—given even the lowest estimates of black money in the country, this makes it clear just a small proportion of black money is kept in cash. So, if the demonetisation exercise is to be deemed to have been successful, a lot depends on what other information the government is able to get on black money/assets. While the government periodically puts out data on the assets seized under the benami property Act, the crackdown on suspicious/shell companies is probably more significant since it is these very companies that are routinely used to show lower incomes as well as to hide benami income/property.

Over two lakh companies were identified as suspicious/shell firms and struck off from the records of the Registrar of Companies (RoC) earlier this year. The banks were, in turn, asked to give details of the savings/current accounts of these firms. While only a very small amount of data has been got so far, according to the corporate affairs ministry’s press release, while 13 banks have submitted the first installment of data for 5,800 firms—that is, 2.8% of the total—this has already given information on Rs 4,573 crore of deposits. These suspicious/shell companies, the ministry says, had just Rs 22 crore of balances before November 8, but then got Rs 4,573 crore of deposits afterwards—once the demonetised 500/1,000-rupee notes were deposited, new currency notes were withdrawn. It would also appear, from the information collected, that the bank managers were hand in glove with the tax thieves. In just one bank, which had the accounts of 3,000 such shell companies, the deposits in their accounts rose from Rs 13 crore on November 8 last year to over Rs 3,800 crore during the demonetisation period—this money was just as quickly withdrawn, leaving the companies with just Rs 200 crore of deposits when their accounts were frozen. It is premature to draw conclusions on how much money was deposited through these front companies, but the data suggests the amount could be quite large. While this crackdown on shell companies, if completely successful, will ensure that individuals/corporates will now be careful about using shell companies to disguise their incomes/profits in the future, a successful GST will play a big role in ensuring future compliance since, once companies have to declare their correct turnover, their owners will also have to state their correct incomes. Getting GST right though, given the huge problems being faced right now, from its design to the software, is likely to take some time.