Moneylife Events
A Thin Dividing Line: An eye-opener on Indian losses due to tax treaties

A documentary on the working of tax havens in the context of the double taxation avoidance treaty between India and Mauritius reveals that while India may have received foreign investments due to the treaty, tax losses on its account run to the tune of tens of thousands of crores. Is it worth it?

Well known independent journalist and educator, Paranjoy Guha Thakurta’s latest documentary, “A Thin Dividing Line” brings out how tax havens or low tax jurisdictions blur the dividing line between legal forms of tax avoidance, euphemistically called tax planning, and illegal forms of tax evasion or money laundering. The documentary was screened as Moneylife Foundation’s 200th event to an informed audience on 28th February, followed by a discussion with Mr Thakurta. The hour-long documentary includes views from high ranking Indian tax officials, academicians, politicians and an array of top Mauritian officials including its former prime minister on the infamous treaty signed in 1982.

 

Ever since Indian economic liberalisation in 1991, over 40% of investments via foreign institutional investment (FII) and foreign direct investment (FDI) have been routed through Mauritius. But why is Mauritius more popular than other tax havens? The film suggests it is the proximity to India and the fact that over 60% of Mauritius residents are from Indian origin. The corporates in Mauritius pay effective tax of 2%. In India, laws and rules have been created and defended ostensibly because these have helped attract foreign investments. However, India has not necessarily benefitted from all these foreign investments to the extent envisaged or anticipated. Greater transparency in financial transactions, stricter regulation and more effective implementation of existing laws are needed. Even if certain financial transactions adhere to the letter of the law, not all of these are desirable or beneficial for humankind.

 

With the treaty, India has given up its right to levy capital gains tax under article 13. Mauritius does not charge capital gains tax allowing foreign investors to take advantage of the treaty to avoid paying taxes. Mr Thakurta said, “An estimate done by a study puts a figure of many tens of thousands crores in loss for Indian exchequer.”

 

Mauritius authorities interviewed in the documentary talk about due diligence, compliances and safe guards to ensure clean business, the need for resident directors and other checks. However, it is an open secret that Mauritius is packed with ‘nameplate’ companies with top accountants and lawyers in India helping to set them up from India itself. The process of hiding the trail of beneficial ownership through layers of shell companies that sometimes transmit money through multiple tax havens is also well known to the government and Indian authorities.

 

Mr Thakurta’s film discusses “round-tripping” to make it legal. He says, “It’s not like laws in India cannot be enforced, but there are loopholes that are not plugged. Those responsible are incapable or deliberately not doing it.”

 

In the discussion that followed, a well know capital market  commentator pointed how the stock price of tiny companies listed on the Indian market are routinely rigged up a few hundred times and then sold to a faceless FII usually based in Mauritius, thus allowing easy laundering of funds. Moneylife editor Debashis Basu pointed out how every issue of the magazine published examples of stocks that are so-ramped up by as much as 2,000% sometimes (under a section titled Unquoted). But four years after the magazine began to publish these brazen examples of manipulation, the regulator who has spent crores of rupees on market surveillance software has failed to act.

User

COMMENTS

Veeresh Malik

3 years ago

I would like to request MoneyLife and Paranjoy to kindly release this documentary for general viewing online as well as make it free of copyright.

REPLY

Sucheta Dalal

In Reply to Veeresh Malik 3 years ago


Hey veeresh … the sentiment is great, but Paranjoy crowd funds his documentaries and he has not even recovered costs yet.

In fact, ideally, people should buy the DVDs… he seeks a nominal donation of Rs200 and show it to their own groups so that more people can view it!

Shivakumar Patil

In Reply to Sucheta Dalal 3 years ago

Sucheta,

I would like to watch the documentary is there any way I can order it online or get access online by paying a fee.

pravsemilo

In Reply to Sucheta Dalal 3 years ago

Can it be arranged to have the documentary CD shipped?

CA PRADEEP AGARWAL

In Reply to Sucheta Dalal 3 years ago

I feel Madam Dalal should not side with Paranjoy, otherwise as Veeresh has said and appreciated Paranjoy's work, so Paranjoy should say so himself,regarding Costs.

Sucheta Dalal

In Reply to CA PRADEEP AGARWAL 3 years ago

Excuse me? should not side with Paranjoy? What on earth is that supported to mean? He is the film maker. And we hosted the screening at Moneylife. I only repeated what Paranjoy said there… donations were collected by him personally, NOT BY US. You clearly have a problem understanding.
Maybe you dont even know that Veeresh Malik is a consulting editor at Moneylife , but based in Delhi

Veeresh Malik

In Reply to CA PRADEEP AGARWAL 3 years ago

Dear CA PRADEEP AGARWAL Ji, I can not understand what you are trying to say, and nobody is "taking sides". I think we all need to be on the same side and that is, simply, the India side. And in addition, have just returned after spending a few hours with Mr. Guha Thakurta, where the concept of crowd funding was discussed. Voluntary donations from resident Indians are appreciated, and a system may be put in place soon for that, so please await further information on that.

CA PRADEEP AGARWAL

3 years ago

Also feel the losses should be recovered from the Govt of the day or there should be mid term review alongwith the white paper and beneficiaries.

CA PRADEEP AGARWAL

3 years ago

Feel politicians should take public into confidence and after looking into all pros and cons given to FIIS/FUNDS and people/Organisations, in the guise of FIIS.

CA PRADEEP AGARWAL

3 years ago

Feel politicians should take public into confidence and after looking into all pros and cons given to FIIS/FUNDS and people/Organisations, in the guise of FIIS.

CA PRADEEP AGARWAL

3 years ago

Who is really benefitted, under whose patronage

Amit Prabhu

3 years ago

IS it possible to put the video on youtube. It can reach out to a lot more people.

VIJAY SHAH

3 years ago

VERY FEW COMPANIES LISTED ON BOMBAY STOCK EXCHANGE (BSE) ARE TOTALLY DEBT FREE

VIJAY SHAH

3 years ago

DOING BUSINESS 2014
-The World Bank and the International Finance Corporation (IFC) dated 30-10-2013
INDIA
Ease of doing business (rank) 134/189
Starting a business (rank) 179/189
Registering property (rank) 92/189
Trading across borders (rank) 132/189
Getting credit (rank) 28/189
Dealing with construction permits (rank) 182/189
Enforcing contracts (rank) 186/189
Getting electricity (rank) 111/189
Protecting investors (rank) 34/189
Resolving insolvency (rank) 121/189
Paying taxes (rank) 158/189

VIJAY SHAH

3 years ago

THANKS TO SATYAM, WE GOT ONE USEFUL (IMPORTANT) COLUMN OF PLEDGING OF SHARES IN SHAREHOLDING PATTERN WHICH COMES EVERY THREE MONTHS IN BSE INDIA DOT COM

VIJAY SHAH

3 years ago

FOR EXAMPLE HUBTOWN LIMITED HAS PLEDGED ALL MOST 79.50% OF THEIR HOLDING

VIJAY SHAH

3 years ago

SOME COMPANIES ARE GETTING SUSPENDED FOR TEN OR TWELVE YEARS LISTED ON BOMBAY STOCK EXCHANGE AND THEN THE STOCK PRICES OF THAT PARTICULAR COMPANIES ARE RISING TO THOUSAND PERCENT FOR EXAMPLE POLSON LIMITED OR SAY EMED DOT COM TECHNOLOGIES LIMITED

VIJAY SHAH

3 years ago

TO SUCHETA JE ONE MORE SCAM AND THIS TIME IT IS AGAINST (SOME ONE IS MIS-USING BABARA GOLDSMITH' S NAME IN INTERNET) AND MISS BABARA GOLDSMITH IS WARNING TO TAKE CARE (SEE VIDEO) http://www.youtube.com/watch?v=n3zDcJcQs...

VIJAY SHAH

3 years ago

ANOTHER COMPANY LISTED ON BOMBAY STOCK EXCHANGE NAMED NEELAMALAI AGRO INDUSTRIES LIMITED IS AVAILABLE IN THE LOT OF ONE HUNDRED SHARES, TO BECOME A SHAREHOLDER OF THIS COMPANY WE HAVE TO INVEST NEARLY ONE LAKH OF RUPEES

VIJAY SHAH

3 years ago

AFTER NEARLY A DECADE OF DEMATERIALISATION STILL FEW SHARES ARE LISTED ON BOMBAY STOCK EXCHANGE IN PHYSICAL FORM FOR EXAMPLE BOMBAY OXYGEN CORPORATION LIMITED AND THAT TOO IN THE LOT OF FIVE SHARES

VIJAY SHAH

3 years ago

I HAD POSTED THIS SAME MESSAGE EARIER ON 6-2-2014 IN MONEYLIFE WEBSITE

Only 40% of top 1,200 companies reported higher profits in Q3; 26% declared a loss

Moneylife sample of 1,197 companies recorded a profit decline of 15% for the December quarter even though revenues increased by 7%. Operating profits were flat. Mid-and small-cap companies are the worst hit

It is well-known that high interest rates, rising inflation and declining consumer sentiment stunted India Inc’s growth in the December 2013 quarter. But now that we have most of the results in, the extent of the fall looks quite severe. An analysis of the third quarter results of Moneylife’s sample of 1,150 companies (out of a total of 1,197 companies) shows that net profits have declined by 15% year-on-year (y-o-y) to Rs83,110 crore in December 2013 from Rs97,527 crore in December 2012. As many as 302 out of the 1,150 companies (26%) have reported a net loss in the December 2014 quarter. And just 40% of the companies have reported a rise in net profits. Operating profits of the 1,150 companies increased marginally by 0.46% y-o-y to Rs1.69 lakh crore from Rs1.68 lakh crore.
 

In terms of margins, the net profit margin of the companies declined to 6.3% in December 2013 from 7.9% in December 2012, while the operating profit margin declined to 12.8% from 13.6% over the same period.
 

Revenues of the 1,150 companies increased by 7% y-o-y, to Rs13.27 lakh crore from Rs12.40 lakh crore. Of these, as many as 402 companies (35%) reported a decline in sales and nearly 44% of the companies reported a y-o-y sales growth of 10% and over.

 

 

On working out the numbers based on market capitalisation we find that as many as 866 mid-, small-and micro-cap companies have suffered the most. For the 284 mega-and large-cap companies, sales grew y-o-y by 9.72% and 6.59% respectively. However, for mid-, small-and micro-cap companies sales grew y-o-y by 0.05%, 2.07% and -6.47%. Likewise, the earnings of mega-and large-cap companies declined by 9% each y-o-y respectively, while the NP growth of the mid and smaller companies declined much more, by over 300%.
 

The net profit margin of the 104 mega-cap companies declined from 12% in December 2013 to 10% in December 2012, while the operating profit margin declined marginally to 16% from 17% in the same period. For the 180 large-cap companies, net profit margin declined to 4% from 5% and operating profit margin declined from 11% to 10%. For the remaining 866 smaller companies, the net profit margin declined from 0.63% to -1.45% while the operating profit margin declined from 8% to 7%.

 


 

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COMMENTS

Gopalakrishnan T V

3 years ago

No doubt Economic Slow down has affected many a companies but Companies do fudge the accounts and show losses with the help of Chartered Accountants and Auditors.Showing losses do help the Companies to loot banks through write off of loans and obtain several other Concessions and reliefs.There is nothing Called Governance in the system and loot in all possible manner has become the order of the day.

REPLY

sathyacumaran

In Reply to Gopalakrishnan T V 3 years ago

sathyacumaran
its had been rightly said by shri Gopalkrishnan tv that fuding of accounts by companies the main job of chartered accountants and auditors is fudge the accounts the purpose of auditors are watchdog is definition of auditor as per icai rules and all audit books gives this explanations but as rightly said its only in books and not for practical purpose so again hear also honesty and integrity and accountability is totally lost is sorry state of affairs of our country because people and chartered accountants and auditors and lawyers and compliance team in greed to earn money they stoop to do any job for cost is plight if they refuse they would be checked out of the company that is the order of the day and inorder to safeguard their position they stoop to this level of fudings of accounts as mentioned by gopalkrishnan

Has the scope of CSR been too narrowly defined?

As the permitted list shows, a large number of areas like consumer education, RTI or investor literacy, which could benefit middle class people are kept outside the purview of CSR

The Ministry for Corporate Affairs (MCA) has notified rules for corporate social responsibility (CSR) spending on Thursday that has in its ambit a narrow range of activities including livelihood enhancement projects and steps for the benefit of armed forces veterans. As per the notifications issued for Section 135 and Schedule VII of the Companies Act, 2013, CSR spending by companies would be applicable from 1st April. Interestingly, all Central public sector enterprises (CPSEs) were mandated to perform CSR activities out of their net profit since 9 April 2010. Here are the main rules for CSR notified by the government.

 

Where can CSR money go?

It appears that the government intends to ensure that the CSR spending only goes to specific areas as defined in Schedule VII of the Companies Act, 2013:

(a) Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water

(b) Promoting gender equality, empowering women, setting up homes and hostels for women and orphans, setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups

(c) Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro-forestry, conservation of natural resources and maintaining quality of soil, air and water

(d) Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently abled and livelihood enhancement projects

(e) Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art, setting up public libraries, promotion and development of traditional arts and handicrafts

(f) Measures for the benefit of armed forces veterans, war widows and their dependents

(g) Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports

(h) Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government

(i) Rural development projects

(j) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central government for socio-economic development and relief and welfare of the scheduled casts, the scheduled tribes, other backward classes, minorities and women

 

As this list shows, a large number of areas which could benefit middle class people either as consumers or investors are outside the purview of CSR. For instance, a consumer education programme or one that explains citizens how to use the Right to Information (RTI) Act would not be considered part of CSR spending.

 

For which companies is CSR mandatory?

As per the rules announced, “Every company having net worth of Rs500 crore or more, or turnover of Rs1,000 crore or more or a net profit of Rs5 crore or more during any financial year shall constitute a CSR Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.” The CSR Committee will also have to formulate policy and monitor the implementation and report back to the board of directors.

 

How much should be spent?

The rules stipulate that “The Board ….shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy,”.

 

The Act also stipulates that companies will have to give priority to local areas where they operate from, which makes it imperative for them to focus on local needs. The Act, thus, seeks to ensure an all-round development of the geographies around a corporate entity.

 

Collaborations and exclusions for CSR activities

As per the notification, the company may collaborate with other companies for undertaking projects or programs or CSR activities provided that the CSR Committees of these companies would be able to report separately on such projects or programs in accordance with the rules. In addition, the CSR projects or programs undertaken in India will only amount to the CSR expenditure.

 

CSR project or activities that benefit only employees or their families of the company would not be considered as CSR activities as per Section 135 of the Act.

 

Under the new rules, companies are allowed to build CSR capacities of their own personnel as well as of their implementing agencies through institutions with established track records of at least three financial years, provided it does not exceed 5% of the CSR expenditure of the company in one financial year.

 

Political contributions of any amount directly or indirectly to any political party under Section 182 of the Act would not be considered as CSR activity.

User

COMMENTS

Shawn John

3 years ago

Corporates,

If you require professional consulting services please do not hesitate to contact us

http://www.greenevangelist.com
Shawn +91 9535608014

MG Warrier

3 years ago

Any initiative to bring transparency in spending from CSR(Corporate Social Responsibility) funds and to curb use of black money for fighting elections should be welcomed. Even the long list of ‘eligible’ activities that can be funded with CSR allocations has not satisfied the corporates which crave for more flexibility in this regard.
In the matter of social responsibility and avoidance of unethical practices in election expenditure, there are bound to be constraints for any regulatory approach to succeed. The final ‘judge’ will be the society and the Aam Aadmi who exercises his right to vote. The media and the educated population should play their role in creating awareness about the spirit of guidelines among the masses, who, in turn, should press for self-regulation by corporates and politicians.
Incidentally, it would be desirable to keep donations like the ones to Prime Minister’s National Relief Fund outside CSR, so that such funds could be directly deployed for the benefit of geographical areas from which the corporates operate.
M G Warrier, Thiruvananthapuram

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