This is happening in the backdrop of a situation where farmers are committing suicide; rural people are in distress, poor becoming poorer, people losing their livelihood. Few are, of course, becoming rich through largescale corruption amounting to millions of rupees, evasion of tax payment and stashing away ill-gotton money in German and Swiss banks in Liechtenstein Island. Such is the paradox of the day.
Another paradox is money laundering leading to foreign funding of terrorist activities in the country. Terrorists are also funded through fake currency and resources mobilised through drug trafficking.
The government’s premier investigating agency, CBI is engaged in a cover up game and the government has no guts to allow free and fair investigation by a Joint Parliamentary Committee.
The political leaders have failed to give a proper leadership in a crusade against corruption and price rise. Perhaps the nation is waiting when the people will come out in the streets on their own as has been in Egypt. If such a thing can happen in a dictatorship, then why not in a democracy?
The ill-gotten money is now being stashed away in 15 banks in Liechtenstein Island, out of which seven are Swiss. Noted lawyer, Ram Jethmalani who has filed a PIL in the Supreme Court has estimated $1500 billion illegally stashed away in LGT and other foreign banks. The Global Financial Integrity has estimated the amount at $462 billion.
According to Jethmalani if the total ill-gotton money is brought back it would wipe out all the debts of the country, each family would get Rs 2.5 lakh each and there would be a tax-free Budget for next 30 years.
The government, however, has the details of depositors of the ill-gotton money and is unwilling to make it public claiming that the Double Taxation Avoidance Agreement with Germany would come in the way of making the information public. If this is so, then why the government in a democracy should strike an agreement with any other country which compels it to withhold informations of genuine public importance and concern.
The government has submitted the documents to the apex court under a sealed cover and has requested not to disclose the contents to the petitioner. But the government’s contention is being challenged as Liechtenstein island is an independent principality – monarchy – in Europe and the DTAA with Germany would not come in the way of public disclosure if the government opts to source information directly from Liechtenstein Monarchy.
Other view is that the DTAA should not come in the way when transactions concerned only Indians. DTAA comes into play when transactions are between German and Indian entities.
The US Administration has recently been successfully in getting back the ill-gotton money from these banks. Why can’t India garner this courage and competence?
The Union finance minister, Pranab Mukherjee claims that India has begun playing a proactive role in the global crusade against illicit funds. But no concrete action is seen on the ground.
He says that India played an active role in finalizing the Declarations of G-20 Finance Ministers Meetings in London and Pittsburg which included delivering an effective programme of peer review, capacity building and counter measures to tackle non-cooperative jurisdictions that fail to meet regulatory standards. As a result, all the tax havens have now agreed to end the bank secrecy. They have also agreed for not applying the principle of dual criminality while exchanging information for tax purposes. Countries are also willing to enter into Tax Information Exchange Agreements in the absence of a tax treaty.
India is playing a very active role as a Vice Chair of the Peer Review Group of the Global Forum on Transparency and Exchange of Information for tax purposes and making a positive contribution. It also joined the Task Force on Financial Integrity and Economic Development in order to bring greater transparency and accountability in the financial system.
It has joined as the 34th member of Financial Action Task Force (FATF) on June 25, 2010. FATF membership is important as it will help India to build the capacity to fight terrorism and trace terror funds and to successfully investigate and prosecute money laundering and terrorist financing offences.
India on December, 15, 2010 gained membership of the Eurasian Group (EAG), which is a Financial Action Task Force (FATF) styled regional body, responsible for enforcing global standards on anti-money laundering (AML) and combating the financing of terrorism (CFT) in the Eurasian region. The Eurasian Group is strategically and geopolitically important for India to fight financing of terrorism and money laundering through drug trafficking and fake Indian currency notes. India is actively participating as an Observer in OECD and is also a member of the UN Tax Committee and Sub-Committee on Transfer Pricing.
But where is the action on the ground to book the culprits, Mr Finance Minister? Mere membership of global bodies will not help unless action is backed by sincerity and determination…….
India has Double Taxation Avoidance Agreements (DTAAs) with 79 countries, but as many as 74 DTAAs needs to be modified to broaden the scope of the articles of exchange of information to include that on banking transaction. This show that how DTAAs were drafted and signed without proper homework.
Letters have been issued to 65 countries for initiating the negotiations to modify the relevant articles in DTAAs. Ongoing negotiations with 9 countries has been put on the fast track.
In negotiating new DTAAs with 15 countries, attempts are being made to ensure that articles concerning exchange of information are in accordance with the international standards and specifically providing for exchange of banking information.
Two new DTAAs have been notified and in 11 more, negotiations have been completed and are in the advanced stage of finalization. Negotiations are in progress in another 2 DTAAs.
DTAA with Switzerland was signed on August, 30 2010 and is now before the Swiss Parliament for approval. Once the Swiss Parliament grants the approval, DTAA will become operational.
India has completed negotiations for 10 new Tax Information Exchange Agreements (TIEAs) with Bahamas, Bermuda, British Virgin Islands, Isle of Man, Cayman Islands, Jersey, Monaco, Saint Kitts & Nevis, Argentina and Marshall Islands out of 22 identified countries/jurisdictions. G-20 Communique has made mandatory the signing of TIEAs in case any country demands this instrument with low or no tax jurisdictions and countries.
To sum up, a total of 23 negotiations in line with international standards have been completed for DTAAs and 10 for TIEAs. In 31 cases, DTAA negotiations and in 5 cases, TIEA negotiations are in progress.
On June 1, 2009 the Prevention of Money Laundering Act (PMLA) was amended whereby the predicate offences listed in the Schedule to the Act were substantially increased in terms of the Acts covered and sections covered under such Acts. This amendment has tremendously widened the scope of money laundering investigations by the Directorate. The provisions of the Act also allow for causing attachment of the tainted proceeds located abroad by requesting the foreign administrations through Letters of Request issued by competent courts. FIU-INDIA is fully functional now.
However, the existing transfer pricing provisions which were introduced in 2001 do not have detailed provisions as compared to transfer pricing provisions of developed countries. There is need to upgrade these transfer pricing provisions to meet the challenges of growing intangible economy and various complex cost sharing arrangements. DGIT (International Taxation) has constituted a committee to look into the issue of revising the transfer pricing provisions. The committee will submit its report by March 2011.
The DGIT (International Taxation) is slated to formulate a strategy for swift and uniform application of law on international taxation and transfer pricing. A committee has also been constituted to formulate a strategy for proactive and comprehensive representation before AAR, Tribunal, High Court and the Supreme Court by February 2011.
The Finance Minister claims that the new Direct Tax Code Bill slated to be introduced in the Parliament would help to unearth black money in the country.
Recently overseas units of Income Tax office has been set up in 8 countries only namely, USA, UK, Netherlands, Japan, Cyprus, Germany, France and UAE to track illegal funds of Indians. These 8 offices will soon be functional. However till date only two Income-tax overseas units located in Mauritius and Singapore and these units are providing some valuable information. A dedicated Exchange of Information (EOI) Unit with direct access power is being created under the Foreign Tax Division of CBDT to ensure that the work of exchange of information is effectively carried out.
Much needs to be done in making the laws more effective for checking tax evasion and sources of illegal money both inside and outside the country. International agreements and bilateral agreements with countries should ensure that informations are made public in the best interests of democracy and effective actions taken to book the culprits.