Rudolf Elmer is a Senior Swiss Bank Executive and a whistleblower. Recently, he released a CD with names of more than 2,000 international tax dodgers who had secret Swiss accounts. According to the Swiss Banking Association reports of 2006, Indians have more undeclared money hidden away in secret accounts than the rest of the globe combined. The estimate is placed at $1,456 billion. Estimating the unaccounted foreign money of Indians is a futile job.
When it is known that it is secret money, any attempt to estimate it will be like trying to find the black cat in a dark room. What should the Government do in this situation? Deregulations after 1991 accelerated the outflow of illicit money. We are now face-to-face with the question of why individuals and corporate houses choose to stash away unaccounted funds in tax havens.
Defenders of the Swiss bank secret deals argue that tax is a morally neutral battle of wits against fiscal authorities, and is quite different from money laundering or fraud. Companies, it is argued, have a legal duty to use offshore finance in order to protect the interest of shareholders and reduce taxes. Offshore jurisdictions provide the tax and regulatory competition that keeps grasping governments and officials in check.
Ultimately, this money will reach shareholders as dividends. The need is for simpler, clearer tax regimes onshore, where companies do the real business. These arguments overlook the fact that clever offshore schemes favour bigger competitors. Offshore finance stews the global distribution of wealth, away from poor countries and those that levied taxes to pay for public goods. Poor countries are estimated to lose around $1 trillion a year to tax havens, and this is around 10 times the aid they received. Much of these is tax evasion and avoidance. The result of the offshore boom can be startling.
As the Economist notes, Mauritius is the largest investor in India, and the British Virgin Islands in China. It is necessary to understand how tax havens have become so popular in the past decade and more.
Tax havens have easy facilities for registering companies and processing payments. One avenue for reform suggested from London is to place a greater duty on companies to explain what profits they make and where.
India's parallel economy generates two kinds of money — rupees at home and dollars abroad.
Not only is that money unaccounted for, the black money that generates these revenues is also not accounted for. Several suggestions have been made to tackle the menace.The American example of imposing a one-time tax on funds held offshore and brought into the accounting system can also be considered.
AMENDMENTS IN THE LAW
The Central Board of Direct Taxes is also considering amending the law. Such amendments, however, shouldn't impinge on vested rights of individuals and corporate houses. The suggestion for removing the time limit for reopening completed cases is fraught with the danger of bringing in harassment at all levels. At present, after six years, we needn't fear the tax department. The suggestion to extend the time limit, for reopening up to 16 years, will only lead to harassment.
Rather, the government should seriously consider declaring tax evasion a criminal offence under the Indian Penal Code, the Money Laundering Act, and the Criminal Procedure Code.
Our Finance Minister has revealed that the French Government has released information regarding Indian money kept in foreign banks to the extent of Rs 400 crore, covering 69 overseas accounts. France is known to use any method — buy, beg or steal to get at such information. If, as is widely believed, India is in possession of information regarding Indian money kept abroad, the government should immediately act or reveal the names of recalcitrant individuals and corporate houses not willing to come forward with disclosures.
According to Rudolf Elmer, many rich Indians, including business magnates, film stars, and sports celebrities have wealth hidden away in tax havens. The very disclosure that the government is in possession of information regarding persons having money abroad in secret accounts may infuse fear and help in voluntary disclosure.
(The author is a former Chief Commissioner of Income-Tax.)