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A major issue on the agenda

The recommendations of a task force appointed by the BJP’s senior leader L.K.Advani on the steps to be taken to bring back funds illegally stashed away in tax havens by resident Indians are timely. At the minimum, the suggestions should ignite a debate over a complex issue that has over the years defied a clear-cut analysis, leave alone workable solutions. Public perceptions have remained strong of domestic money being banked illegally in Switzerland and a number of other countries that observe strict banking secrecy. Among the alleged perpetrators are politicians, bureaucrats, criminals as well as businessmen engaged in mispricing of goods and services involved in otherwise genuine trade transactions. It was widely believed that the high level of personal taxation that prevailed in India for over four decades after Independence prompted many individuals and companies to stash their wealth abroad. But, as the task force has noted, a more benign tax regime does not seem to have reversed the trend. If anything, the flow has increased. Estimates of money stashed abroad vary from Rs.70 lakh crore to Rs.25 lakh crore. The wide range demonstrates the complexity in collating such data but even at the lower end the magnitude is huge. Ironically, the dismantling of exchange controls — for all practical purposes the rupee is convertible on the current account and even capital transfers are allowed up to $200,000 a year — has apparently not stopped domestic money from going out.

Tax avoidance at home might still remain the primary motive in parking money abroad. But increasingly, money laundering by terrorist and criminal organisations through tax havens and offshore centres has become an even greater cause for worry. It is this that has prompted strong initiatives from OECD countries to pierce the veil of secrecy surrounding banking practices in the tax havens for purposes of criminal and tax investigations. After the recent G20 summit, there is an agreement on compelling tax havens to adopt international codes of conduct and information sharing. It stands to reason that India should take advantage of the ongoing global initiative against tax havens. Only through coordinated multilateral effort can the abuse of banking secrecy be stopped. While some of the task force’s suggestions are unexceptionable, some others will be difficult to implement by any government. Bringing back the money stashed abroad will be an enormously time-consuming task but it needs to be attempted. Mr. Advani has done well to highlight a key challenge that should be addressed by the new government that is to take office.

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