Here is an interesting story:
Once Badshah Akbar' s army was engaged in a prolonged war. As a result his royal wealth ("shahi khazana") was nearly exhausted.
He asked Birbal, "How to replenish my wealth."
Birbal: You can get it from Dhanna Seth.(merchant).
Akbar was amazed as to how a trader/ merchant could have so much money. Still he went to Dhanna Seth.
Dhanna Seth offered: Badshah Akbar, I have huge wealth, take as much as you want."
Akbar: Dhanna Seth, How did you accumulate so much wealth. Tell me without any fear of punishment.
Dhanna: I earned it by adultrating grains spices.
Akbar got angry, he took all of Dhanna's wealth and ordered him that from then on he would collect the horse dung in his royal stable. Dhanna agreed.
Years passed by. Again Akbar had to fight a long drawn battle. Again his royal wealth exhausted again Birbal advised Akbar to go to Dhanna Seth for help.
Akbar wondered : Birbal, I had ordered him to work in royal stable to collect horse dung, How on earth he can have such a wealth."
Birbal: Badshah, you can ask him but only he can help you.
Akbar went to Dhanna. Dhanna gave Akbar huge wealth.
Akbar: Dhanna Seth, I had earlier taken all your wealth, How did you accumulate it again?
Dhanna: From the stable - incharge horse attendants. They used to underfeed the horses. I threatened them that I will complain to Badshah that they did not feed horses enough, hence the horse dung quantity was less. So they bribed me to keep silent.
Akbar got very angry again ordered Dhanna to start counting the waves at sea returned to his Palace with Dhanna's wealth.
As luck would have it, Akbar fought another war, royal wealth emptied out and once again Birbal advised Akbar to go to Dhanna Seth for help.
Akbar could not believe as to how Dhanna could earn so much by counting waves at sea.
Akbar asked Dhanna for the help.
Dhanna: Badshah, Take as much as you want but this time around I will not change my profession.
Akbar: Ok, but tell me how did you earn money by counting Water waves at sea.
Dhanna: Very simple, I used to stop merchant's ships boats far away from sea shore. I showed them your orders that I was counting waves their ships boats would disturb or break the waves hence their ships or boats should stay away. Badshah, these merchants then used to bribe me to let them reach the shore unload their merchandise.
So Badshah understood that Dhanna Seth can earn by engaging in manipulations bribery from any profession.
Demonetisation or no demonetisation, the Dhanna Seths of our society will always find a way to earn accumulate black money..... Endlessly...
Now to my own experience.
I have also been in business for the last 32 years in Kerala. I am not much of a businessman as my interests lie in rationalism and business to me was just the means to make a living and read books. I would grade myself as 5 to 6 on a scale of 1-10 for a businessman. I must also admit I was guilty of evading tax. But that was because there was no alternative; I had to evade tax to survive in a competitive market.
I was dealing mostly in solvents for different resins and paints. One of the items I used to deal in was Toluene which is a thinner for various paints. It is also used in washing pharmaceutical capsules. One of the biggest manufacturers of Toluene in India is Kochi refineries (KRL) hardly 10KM from home.
Now there are two kinds of consumers for Toluene - 1. Those who use it as raw material ingredient in paints, thinners and other products. 2. Those who use it as consumables such as in washing pharmaceutical capsules.
When Toluene is used as an ingredient or component it has to be accounted weight for weight in the finished product. Thus if 60KG of Toluene goes into making 100KG of paint or other formulations the finished product will contain 60% by weight of Toluene.
But when it comes to the use of Toluene as consumables such as in washing capsule, there is no Toluene whatsoever in the finished product. Another common consumable is welding rods which do not come as an ingredient of the finished product.
There are many Pharmaceutical companies in Hyderabad which buy Toluene from KRL for washing their capsules. If they need 30 MT of Toluene they buy 40 MT and unload the excess 10MT in Kochi itself to dealers like me without bill or documentation. I make the payment by Hawalla. The Pharmaceutical firm in Hyderabad will account for the excess 10MT as expenditure for which they are entitled to income and excise deduction. The Hawala payment for the 10MT made by the likes of me will become black money in the hands of the Hyderabad businessman.
I am now left with 10MT of Toluene which has no purchase bill or other papers. I sell it to small operators manufacturing paint thinners/polish etc and who are not particular about bill. They sell their product to car painters, wood-furniture manufacturers etc who also do not need any bills. And of course we the people are ready to buy such furniture or services if they can get lower costs without paying taxes. So in a way it is everyone form the Hyderabad businessman to the common man who is responsible for the black market and black money in India.
You may ask me why I do not keep off such black market deals. My customers come to me for a basket of different things such as Toluene, Acetone, Turpentine, Butyl Acetate, Butanol etc most of which are sold legally. But if I do not give them Toluene also they may go to other suppliers and if they are not fussy about taking black-market Toluene I have to sell them that. So I have to deal in the black market if I am to survive in my business. As you can see from the example above businessmen have to go along with the system if they are to survive.
The common notion that businessmen thrive by not paying taxes is a false one. In a competitive market businessmen have to reduce prices in step with the tax evaded.
Suppose there is a 10% tax on an item and if a businessman takes 10% from the customer and pockets it his competitor will sell for 7% tax and pocket it and then another competitor will sell it at 5% tax and pocket it. This will mean loss of market for the first seller and he will have to reduce his tax margin to 2% or less and ultimately the tax evaded will pass on the consumer in Toto unless there is a shortage or monopoly.
So the blame for the black money cannot be blamed in businessmen along. It is the system from the manufacturer to the common-man consumer who are responsible for the black money. The common man on the street who waxes strong against black money will shy away from a proper bill if he stands to gain a few rupees from the black transaction. So we are all responsible for the malaise called black money. Black money is systemic and has to be treated as such. Demonetization and other countermeasures can be merely topical at best.
"All new ideas good or bad, great or small start with a one-man minority" - anonymous
Posted by: Xavier William <email@example.com>
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