- Illegal bank accounts in safe tax havens, stashing away of humongous amounts of cash through indigenous methodologies, routing of money through hawala channels, money transfers over dubious means, Benami investments in properties, and whatever ways and means to avoid income tax liabilities are simply treated as common occurrences in the country. Such has been the focus on some of the most devious routes adopted by the people failing to pay legitimate taxes that the issue garners huge interest and debate. The tax avoidance matter is graphically exposed in a variety of forms vis-à-vis movies, web series, soap operas, extensive media coverage, reportages, and of course, casual conversations.
PC: Shishir Sinha
- Since these activities, some legal and many illegal invariably involve high-profile personalities, the interest quotient goes through the roof in attracting widespread coverage. People may deny it point-blank, millions of us do derive voyeuristic pleasure when a successful personality is found involved in avoiding the income tax net by opening offshore accounts. Mind you, some of the biggest names in the country figure in reports that emerges sporadically. The latest data dump, dubbed Pandora Papers, by a consortium of journalists has catalyzed the Government of India to set up a multi-agency body to oversee investigations into potential tax evasion by Indians. The nation’s interest is piqued again.
- It is mentioned that this is the third major leak in five years of confidential data of intermediaries who specialize in organizing these accounts for clients. Further, the leaks have been used to check for possible tax evasion and the last two have resulted in the detection of undisclosed income of Rs. 20,352 crores, according to the Government authorities. Remember, all offshore accounts are not illegal but what needs to be understood here is the ecosystem is allowing intermediaries to help clients use the banking networks to conceal income in tax havens with an express intention to evade taxes. For the inquisitive lot, tax havens are characterized by negligible or zero tax rates and a system of secrecy concealing a firm’s beneficial owner or the natural person behind a legal or tax arrangement.
PC: Bruce Reimer
- The problem is the secrecy surrounding the system is causing troubles for other countries. As you are aware, the pushback against the scourge came on the heels of the 2008 global financial crisis prompting G20 leaders to pledge to root out banking secrecy. The goal behind the apparatus is to ensure beneficial owners cannot hide behind layered structures designed to conceal their identity. This goal is being pursued through multiple fora including the Financial Action Task Force (FATF). Consequently, two structures used to conceal beneficial ownership, nominee shareholding, and bearer shares have been phased out in many countries. Interestingly, India’s electoral bonds are bearer bonds carrying the risks of providing complete anonymity to the donor. The SC is yet to decide on their constitutionality though.
- As can be comprehended by the Pandora Papers revelation, there’s still a long way to go before the ecosystem allowing concealment of beneficial ownership can be dismantled. Of course, FATF is working on a recommendation to sharpen focus to curb money laundering and terror financing (Pakistan is under the scanner). It would be worth watching how the Government of India goes about addressing the issue. There is no denying that a thorough clean-up should be undertaken to address the menace.
