Dear Sir, I think that the stashing of money in tax havens is the
symptom and not the disease. It is important to understand why a
businessman would want to stash his money in tax havens. There are
several reasons that suggest that merely setting up an SIT to track
black money will not yield the desired result.
The first reason is that a businessman expects a reasonable inflation
free return on his investment. I don't think that our Govt can assure
this because of the hunger of the socialist government to finance
welfare schemes to perpetuate the party in power.
Second, constantly changing tax rates, custom duties with a lot of
discretionary power with the assessors to levy the taxes. Tax
litigation taking years to settle.
Thirdly, an unholy nexus between the political parties and the
bureaucracy that leads to or perpetuates cash transactions on a
massive scale.
Fourthly, poor security and safety of banking data. This is easily
compromised for commercial interests by petty officers and other
operators.
On the other hand, the tax havens provide the cover against such
deficiencies.For instance, they don't ask too many questions before
assigning an account ( unlike our frequent insistence on the KYC)
There is a strong reason to believe that funds in these tax havens
are not idle but find their way to lucrative investment decisions. So
any attempt by the Govt to repatriate these amounts are likely to
back fire with the operators of the accounts cleaning everything up.
Being an election issue the setting up of an SIT may be a good idea
but in terms of its performance on the ground, they may not be able
to do much. Wisely, the Modi Govt. has not set a target on the amount
of money that they will be able to recover in the first hundred days.
Best Regards,
K.Paranjpe
On Sat, 31 May 2014 20:39:56 +0530 wrote
> SIT on black money: If there is political will, it should go for
gold and a big haulBy Prof R. Vaidyanathan First Post—FirstBiz—31-05-
2014More than six years ago, in February 2008, the German authorities
had collected information about illegal money stashed away by
citizens of various countries in a Liechtenstein bank. The German
Finance Minister offered to share the names of these account-holders
with any government interested in them. The UPA-1 government,
unfortunately, did not act for many months and, after much prodding
by the Opposition, asked for the list in late 2008.A German
intelligence agency appears to have paid an unnamed informer more
than $6 million for this confidential and secret data about clients
of the LGT group, a bank owned by the Liechtenstein Prince's family.
The revelations have already led to the resignation of the head of
Deutsche Post, which is currently the world's largest logistics
company. Liechtenstein leaders were furious and have focused all
their ire on the theft of the data rather than on the facts of the
case.The German list contained the names of 1,400 clients of the
Liechtenstein bank, of whom 600 were Germans. A spokesman for the
German finance ministry, Thorstein Albig, had said in March 2008 that
information on the other accounts would be shared without charging
any fees. Finland, Sweden, and Norway quickly obtained the data, but
our government began pussyfooting around this issue. If it had
genuinely wanted to act against black money, it should have
immediately despatched senior officials/ministers to get the names.
Pushed and prodded by the Opposition and the media, when the
government finally moved, it got nearly 100 Indian names – but those
names have been kept a secret.This writer, who has been studying tax
havens for more than a decade, wrote in April 2009 (in the journal
Eternal India, published by India First Foundation) about the need to
get back the illegal deposits kept by Indians in various tax havens,
including Liechtenstein. A public interest litigation was then filed
by Ram Jethmalani and others in the Supreme Court, to which the
government responded that it was taking steps to recover such
amounts. It had also mentioned that the German government had given a
list of people who had kept money in the LGT Bank of Liechtenstein
(May 2009). The government's response also said that steps were being
taken in the case of Hasan Ali Khan, a Pune horse-breeder, who was
alleged to have indulged in several illegal transactions through the
UBS Bank of Switzerland.In the meanwhile, the then Leader of the
Opposition in the Lok Sabha, LK Advani, had constituted a committee
consisting of S Gurumurthy, well-known Chartered Accountant, Ajit
Doval, the current National Security Advisor, lawyer Mahesh
Jethmalani, and this writer. The report of the committee was also
used by Ram Jethmalani in his PIL filed with the Supreme Court.The
government maintained that it cannot reveal the names received from
Germany since it had obtained the same under the double taxation
avoidance treaty. The point is: why did the government ask for
information under the double-tax treaty with Germany when the issue –
stolen data from the Liechtenstein bank by Germany – was unconnected
to the treaty? Where is the issue of confidentiality vis-a-vis
criminals? Actually, it is wealth kept illegally in the bank in
Liechtenstein, and the money does not even concern Germany.The
double-tax treaty generally prevents the use of information supplied
under the treaty for any purpose other than the levy and recovery of
tax. It is doubtful whether the income tax department can share the
details it has secured under the treaty with the Enforcement
Directorate or the National Investigation Agency which tracks terror
cases, or the NSA. That is why the Supreme Court had refused to
regard it purely an issue of tax evasion.The finance ministry says it
has the names but will not reveal them. But is this right? The
accounts are those of international crooks who have deprived our land
of huge financial resources through capital flight. It is an
unpatriotic act which can be equated to financial terrorism. Domestic
black money (that is untaxed income) is merely a no-confidence motion
against the government's tax policies, but black money in tax havens
abroad amounts to no-confidence against the country - which is akin
to treason.A report in The Economic Times dated 4 June 2009 said that
of the 50 Indians who have stashed funds in LGT Bank, 25 belong to
Mumbai. The tax authorities have reopened assessments of these 25 tax
evaders under section 148 of the Income Tax Act. This implies that
the government is treating it as tax evasion and not capital flight
and a crime against the country. But on 19 January 2011 – after two
years of waiting - the Supreme Court made a historic observation
about this shameful phenomenon of Indian funds being kept illegally
abroad and the obstructionist attitude of the central government in
unravelling the truth.A report in The Hindu quoted the court as
saying that black money stashed abroad by Indians was "pure and
simple theft of national money." The court "questioned the Centre's
approach to tackling this menace and retrieving the huge amounts kept
in foreign banks. When Solicitor-General Gopal Subramaniam furnished
in a sealed cover a list of 26 names who had accounts with (the)
Liechtenstein Bank, a bench of Justices B Sudershan Reddy and SS
Nijjar was not convinced of the steps taken by the government for
getting back black money. Justice Reddy, after perusing the list,
told the SG: 'This is all the information you have or you have
something more? We are talking about huge money. It is a plunder of
the nation. It is pure and simple theft of national money. We are
talking about mind-boggling crime. We are not on (the) niceties of
various treaties."The court then insisted on the formation of a
special investigation team (SIT) with ex-Supreme Court judge Jeevan
Reddy as Chairman, assisted by Justice MB Shah, and asked the
government to share details about the Liechtenstein list. The UPA
government dilly-dallied and used every ruse in the legal book to buy
time. But the Supreme Court was very upset and told the government
that it can be hauled up for contempt of court. The court, in its
order of 1 May 2014, had given the government three weeks' time to
issue a notification for setting up an SIT to be presided over by
Justice MB Shah (since Justice Jeevan Reddy had declined to head it
for personal reasons), with retired Justice Arijit Pasayat as vice-
chairman, to guide and direct the investigation.The three weeks ended
on 22 May and extended to 27 May due to a change in the government.
Hence, the first decision of the new government was about the SIT. It
was a decision pushed down the throat of the government of India by
the court due to the sustained efforts of Ram Jethmalani, represented
by Anil Dhavan, and armed with reports of this writer. The SIT will
consist of the Chief of the Financial Intelligence Unit, the Chief
Commissioner of Income Tax, a Deputy Governor of the RBI, the IB
Director, the Narcotics Bureau chief, and the head of the Enforcement
Directorate. The group will also have access to the accounts of HSBC
Bank, Geneva, details of which were given by the French
government.The SIT is essentially a group of bureaucrats with varying
degrees of expertise about tax havens. This is mainly for illicit
money kept abroad and not for domestic black money. Most of the
double tax treaties which the UPA-2 entered into are prospective in
nature and the task of looking into past illegal funds is
complicated.The group should distinguish between pure tax evasion
(let us call it vegetarian black money) and funds connected to
terror/arms smuggling/narcotics (say, non-veg black money). The
former is easy to focus on and can be dealt with through penalties. A
recent Supreme Court judgment, which says that "that Indian resident
beneficiaries shall not be taxed on the income of an offshore
discretionary trust as long as the trustees do not distribute income
to the beneficiaries," may help many in the first category.The best
way to proceed is to have a joint sitting of Parliament and pass a
resolution stating that "any funds abroad held by Indian nationals
belong to the Republic of India" unless they have been kept abroad
under legal rules and regulations. Armed with such a resolution and
recent agreements entered into by Switzerland and Singapore with OECD
countries, the SIT can go for gold! Actually, the SIT should be
willing to use the concept of sama/dhana/bheda/dhanda in achieving
its task - many secretive jurisdictions, including Switzerland, can
and should be arm-twisted to part with information. After all they
have huge investments in IndiaIt is also necessary to consider the
gold/diamonds/precious items kept by Indians in the lockers of banks
in tax havens abroad. The road ahead for the recovery of illegal
money stashed abroad is full of pot holes and craters, but we Indians
have a way of navigating such impediments. What is needed is the
political will for the same.(The author is finance professor, IIM
Bangalore. These views are personal)
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Mumbai
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