Going after money stashed abroad

It is now becoming clear more than ever before to the regulators as well as investigators that it makes infinitely more sense to use intelligence either to ideally pre-empt a terror or criminal act or to nab the one who has already indulged in these acts. The income-tax sleuths' tapping of phones used by Niira Radia in the 2G scam is a case in point.

In departmental stores and other big establishments, shoplifting is discouraged by the use of cameras as well as by placing on the bar code of every product a trigger that goes off as soon as one tries to cross the shop exit with the item he has not paid for and is trying to sneak away. The trigger is automatically neutralised on billing. In airports and other sensitive places, intrusive touch and feel frisking is giving way to scans with physical invasion of a person by another person being resorted to only if the scan reveals something suspicious. Banks have been alerted by banking regulators to keep an eye for anything fishy or extraordinary. The trend then unmistakably is towards use of intelligence with invasion being the last resort.

Tracking movements

Of a piece with this trend is the Indian income-tax law's accent on keeping track of high volume transactions. As it is investments in excess of Rs 1 lakh in IPOs, deposits in banks in excess of Rs 10 lakh in cash during a year, purchase of immovable properties with registration value being in excess of Rs 30 lakh require reporting. This is as it should be. Airlines can provide vital clues. In the US, airlines flying international flights are hooked to homeland security's system and when a person exits the country, appropriate notation is made by the airline itself unobtrusively and quietly. There is no reason why all airlines operating flights from India cannot be called upon to maintain a database recording the movement of every person to the known clandestine destinations for suspected nefarious activities.

Buying peace

Intelligence can also be used to buy peace with the taxpayers which is what Israel has been doing by resorting to presumptive taxation instead of the more alluring, but admittedly more intrusive actual taxation i.e. taxation of the actual income through the tedious process of verification of returns and records. Profit margins for each industry scientifically worked out in advance can provide relief to both the assessor and the taxpayer though fiscal purists may cavil at it on grounds of adopting a one-size-fits-all approach when expenses pattern varies from person to person. A sensible suggestion made way back in 1997 by the Direct Taxes Reforms Committee to tax professionals on 70 per cent of their receipts was thus consigned to the dustbin almost contemptuously presumably at the behest of vested interests whereas a 30 per cent presumptive expenditure sounds very reasonable, considering the fact that for professionals cerebral power is the main item of expenditure.

Intelligence then has another shade as alluded earlier — making a compromise not in a manner of giving quarter to crooks which is what confession before the Settlement Commission or before the Amnesty authorities amounts to by assuming a reasonable position. There are straws in the wind. The 20th Schedule to the Direct Taxes Code Bill, 2010 seeks to launch a mindless attack rather over-ambitiously on Indians stashing away money abroad and laundering them through shell companies there. These companies are called foreign-controlled companies i.e. controlled by residents of India. They would be called upon to disclose their investments in these companies as well as disclose the percentage of profits enuring for them from these companies whether declared as dividend or not through complex calculations.

Nobody places his head on the chopping block. This proposed piece of legislation is of a piece with the hilarious provision in the extant wealth tax law calling upon companies to disclose their cash balances not recorded in the books. But the government seems to have realizsd the futility of taking such a maximalist position if the provision introduced to the extant income-tax law is any indication. The government has settled for a 15 per cent tax on dividend from these shell companies as indeed from any foreign company. This climb-down would encourage Indian industrialists to declare dividend abroad and bring them to India.

This is not to suggest that stashing away of black money abroad should be handled with kid gloves. That is an issue to be handled and addressed separately if necessary with all the steel at government's command. But no government should make a laughing stock of itself by making impossible provisions that appear solemn but invite derision and violation. The 15 per cent tax on dividend from abroad has gone down well with the industrialists and one expects a sizable foreign exchange inflow on this count. Some may call this official laundering scheme. Well, so be it.

(The author is a Delhi-based chartered accountant.)

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