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Mainstream, VOL 61 No 42 October 14, 2023

Why Doesn’t India Wage War Against Tax Havens? | M.R. Narayan Swamy

Saturday 14 October 2023, by M R Narayan Swamy



Black Money and Tax Havens (Updated Edition)
R. Vaidyanathan

Penguin Books
ISBN: 9780143459446
Pages: xvi + 254; Price: Rs. 399 

This is an authoritative book on tax havens and why the superrich all around the world love them. When it comes to India, two unpleasant conclusions can be drawn. One, the Congress party, whatever it may now say about the Adanis, never showed any serious intent to bring back money stolen from India and stashed away abroad. Equally important, the Modi government, which took power in 2014 on the promise of recovering the black money and even distributing it among Indians, is also not keen on unearthing the Himalayan loot. And it is curious that though a Lok Sabha election is only months away, neither of the two dominant parties is even talking about a problem that is eating India like cancer. 
Author R. Vaidyanathan, an authority on the subject, quotes various estimates as putting the amount of black money from India at anywhere between $181 billion and $1.8 trillion. Whatever the estimate one takes, the ugly reality is that even a fraction of the amount has not been recovered by successive governments. Forget bringing back the money, no government has made any feeble attempt to pro-actively lay hands on this mind-boggling amount of stolen wealth. Could this be because of the nexus between corporate India and political elite? 
When Germany gave India a list of Indians who had kept money in the LGT Bank of Liechtenstein in 2009, the UPA government refused to reveal the names. Reason? It argued that the list had been obtained under the double taxation avoidance treaty. Vaidyanathan rightly asks: Why did India even ask for the information under the double taxation treaty when the data was stolen by Germany from the Liechtenstein bank? How could there be an issue of confidentiality vis-à-vis criminals? In any case, this was money parked illegally in a bank in Liechtenstein; it did not even belong to Germany. Stolen money does not and should not come under any double taxation treaty. 
Instead of shaming the holders of black money abroad, the Congress-led UPA government dilly-dallied and used every ruse in the legal book to buy time. The names provided by Germany reportedly numbered 50, of which half were based in Mumbai. What the government did was to treat the crime as an issue of tax evasion and not capital flight and a crime against the country. No wonder, the Supreme Court rapped the government for its obstructionist attitude in unravelling the truth. The matter dragged on till 2014 when Narendra Modi became the prime minister. It is another story that his government too has not made the list public – nor done anything revolutionary vis-à-vis tax havens. 
Similarly, when it became known during UPA rule that around 700 Indians had secret accounts with HSBC Bank in Switzerland, the income tax department allowed them to declare their offshore deposits and file revised returns instead of launching prosecution proceedings. Says Vaidyanathan: “It is like administering a slap on the wrist for murder.” Illegal money kept abroad is not an income tax issue; is there any surprise that the UPA government collapsed after a decade under a deluge of corruption charges? 
According to the book, trillions of dollars of Indian money is in various tax havens. Much of it was siphoned off over the last 70 years due to under-invoicing of exports and over-invoicing of imports. Also, Indian middle men earn huge amounts of commissions in military deals. Julian Assange once stated that Indians accounted for a large number of Swiss bank account holders. These included Bollywood icons and sportspersons. The Associated Chambers of Commerce and Industry of India estimated in 2014 that $2 trillion of stolen Indian money is stashed away abroad in the form of black money – mountains of stolen wealth which Modi publicly pledged to bring back to the country. 
Vaidyanathan admits that successive Indian governments’ hesitation in unearthing and bringing back stolen money may be because some of the accounts belong to influential people in the highest levels of power. The author doesn’t say so but these could well include some politicians at the very top. Nothing else can explain the complete reluctance of the Indian political parties in waging war against the tax havens. The Indian weariness to even rake up the subject is in sharp contrast to the way some countries are going after illegally accumulated wealth. 
The author, a retired professor of finance from the Indian Institute of Management Bangalore, has been a member of the National Security Advisory Board and is on the advisory council of the Vivekananda International Foundation. He says there are four ways in which the black money can be brought back to India. 
One is to do what the Americans did – jail the highest-ranking official of an international bank in India. Begin by asking the bank details of the accounts of all Indians with them. This was done to the Swiss by the US and they complied within two weeks. 
Second, like Germany, India can bribe a high-ranking official of an international bank and get information from a tax haven. The French did this to HSBC. 
Third, use the Double Taxation Avoidance Act to recover money by exchanging information between sovereign tax authorities. But only future violations will be attracted this way. 
Fourth, according to a UN resolution, if any country wants the details of all the holdings of its citizens in tax havens, then the country has to pass a law nationalizing their assets abroad. Once the law is passed, the UN resolution can be used to get the details of the accounts from any tax haven. The Philippines, Egypt and Libya have taken this approach. 
Multinationals, including those operating in India, are among the guilty when it comes to hoarding wealth in tax havens. Of the 100 biggest groups on the London Stock Exchange, 98 use tax havens. Most of America’s largest corporations maintain subsidiaries in offshore tax havens. Fortune 500 companies currently hold more than $2.1 trillion in accumulated profits offshore to avoid paying taxes. The book lists some of the worst offenders as Apple, American Express, Nike, PepsiCo, Pfizer, Morgan Stanley, Citigroup, Walmart, Bank of America, Google, Microsoft and Goldman Sachs. 
MNCs based in India with links to tax havens pay relatively lesser tax than those without any such links. Not only have havens often served as a destination for profits earned in India, but they have also been used as conduits in round-tripping of funds in the garb of foreign investment. “India,” the author says, “has a long way to go to deal with tax evasion by MNCs using tax havens since it wants more FDI and inflows from MNCs and at the same time it needs to protect its interests.” 
Besides the Philippines, Libya and Egypt, other less powerful countries which have managed to freeze or recover money stashed abroad include Peru, Nigeria, Pakistan, Haiti and Tunisia. This clearly shows that any country which has a will can do the same. “India emerges as a contrast to the trend in the world to hotly pursue black money. India is neither doing anything significant within India to expose and prosecute the corrupt and the offenders nor taking legal steps outside India to recover the wealth of India stashed away abroad.” 
Indians will eagerly look forward to see who in Indian politics will bell the cat. The Congress has failed over the decades and so has the BJP in recent times. Of course, nothing prevents them from changing course. But will they? Read this book if you want to know why India, despite all its wealth, remains essentially a poor and developing country, if you ignore the oasis of wealth and development.

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