India's silence on US tax evasion cases says it all

The US is exerting more pressure on banks to cooperate with the authorities in tax evasion cases. While the Indian authorities knew about possible tax evasion in the money being remitted from abroad, they have kept silent fearing backlash from NRIs and PIOs

In yet another tax evasion case, the US justice department has indicted an Indian and a client of Hong Kong and Shanghai Banking Corp (HSBC) for hiding more than $8.7 million in offshore accounts and filing false income-tax returns. While the number of tax evasion cases are going up on the continuous pressure from the US authorities, there is complete silence from the Indian authorities.

According to a senior banker, who requested anonymity, everyone knows that a lot of money coming into India from non-resident Indians (NRIs) or from persons of Indian origin (PIOs) may not be accounted for tax purposes in the country of origin. However, the moment the Indian government initiates any action in this matter, the remittances from NRIs and PIOs would drop dramatically. This may be one reason, why the country is not too keen on signing any international treaties on tax evasion, the banker said.

It is also hard to imagine that the US will get serious co-operation from the Indian government for tracking its relatively small pool of tax-evaded money sitting in Indian banks, when it is doing nothing to bring back billions of dollars of money stashed overseas by the richest Indian businessmen, politicians and bureaucrats. (Read more Tax evasion: Broken trail

On Tuesday, the US Justice Department indicted Arvind Ahuja, a neurosurgeon and US citizen on four counts of hiding the accounts, which held $8.7 million as of 2009, and four counts of filing false tax returns, failing to report more than $1.2 million in interest income, Reuters news agency reported.

The report quoted Dan Webb, Dr Ahuja's lawyer, as saying that the federal government had made a colossal mistake by taking this action and that they would fight these allegations. Mr Webb was quoted as saying that Dr Ahuja had interest-bearing accounts and the (HSBC) bank failed to issue documents that stated his interest income. Once Dr Ahuja became aware of the interest income that was not reported to him by the bank, he paid all taxes owed, plus interest and late payment penalties, the lawyer said.

Reacting to this case, a spokesperson for the bank said, "HSBC does not condone tax evasion and fully supports the US efforts to promote appropriate payment of taxes by the US taxpayers. While complying with the law in all the jurisdictions in which it operates, HSBC cooperates with requests from US authorities."

In April, the US department of justice said that HSBC Holdings Plc's subsidiary in India had helped US taxpayers stash funds abroad. The justice department also served a summons, commonly known as a 'John Doe summons', on the bank to hand over names of their US clients. A John Doe Summons is any summons where the name of the taxpayer under investigation is unknown and therefore not specifically identified.

According to a report by Bloomberg, more than 200 participants in the US Internal Revenue Service (IRS) Voluntary Disclosure Program have been approached by IRS-CI and the DOJ for information about their offshore bank accounts. The report says that investigators are focusing on offshore accounts held at Swiss banks (HSBC, Credit Suisse, Julius Baer, and small cantonal banks) and Israeli banks (Bank Hapoalim and Bank Leumi le-Israel).

Two years back, UBS AG was criminally charged for helping Americans evade taxes. In February 2009, the bank avoided prosecution by paying $780 million, admitting it fostered tax evasion, and agreed to give data to the IRS on more than 250 accounts. UBS later handed over data on an additional 4,400 accounts to resolve a civil suit by the IRS.

Since 2007, when the investigations into offshore tax evasion began, the US has criminally charged at least two dozen UBS clients with tax crimes, as well as four UBS bankers, two HSBC clients, and four other offshore enablers, Bloomberg reported.


‘The realty slowdown is already happening’

Shobhit Agarwal, managing director, Protiviti Consulting India, says that there is little chance of a major correction happening in real estate prices. But various factors are affecting speculative demand which is where a slowdown is happening

The realty sector is facing a crisis. While talks about challenges and opportunities continue, sales are plummeting and the fund crunch is becoming more evident. Shobhit Agarwal, managing director, Protiviti Consulting India, has worked with many clients, and has done audits for several real-estate companies. In an interview with Moneylife, he explained why he believes the sector has to tread cautiously.

Moneylife: Currently, we are seeing a lull in the real estate business. How bad is the situation?
Shobhit Agarwal
: There are two ways to view the situation, the demand and the supply side. Some micro-markets have a significant oversupply and demand is slow. In places where there is more demand, there is no capital flow, for several reasons. There is a visible credit crunch. Now in this situation, a developer has to look at his priorities: Does he have to fund a project? If yes, he can go for private equity funding, or other ways, but the cost is going to be very high. On the other hand, input costs are going up, and raw materials are becoming more costly. A big developer may decide to hold back, hoping for better returns in the future. But for the individual investor, it's really bad.

ML: We have been hearing that realty prices are headed for a correction. Do you see any possibility?
Frankly, a 5%-10% correction doesn't mean anything. And I don't see a major correction happening. For projects which are ready to be delivered, there is not going to be any correction. If the purchase is for end-use, there will be no correction.

There are slight chances of correction for those projects which are still in the conceptual or blueprint stage. But like I said, the chances are only slight, because apart from the construction costs, capital shortage, etc, there is a shortage of labour, because many schemes have generated income in rural areas, and hence, these people do not have to come to the cities. So the big builders are not likely to bring down their prices.

In the next six-eight months, unless a situation is created when all the costs come down, I don't see any significant change. But I will not generalise, because it also depends on the micro-market situation. Small builders, in selective pockets, may offer discounts and lower the prices to sell the inventory and lower monthly instalment rates, because otherwise, their source of income will also dry up.

ML: About holding power: In Mumbai, we have a huge pile of unsold inventory, because prices are high. So if the holding continues with this price structure, will the crisis deepen?
: Of course, it will only get worse. At a time when other cash flows are drying up, sales are the only way out. Debt, in that case, becomes a big problem. I don't see interest rates or inflation going down any time soon. So if you hold on, you are not solving the problem, you are prolonging it. All the companies are showing huge debts on their balance sheets. Clearing that must be the first priority.

ML: So where does this end?
You hold on as far as your balance sheet allows. You can hold back as long as there is a defined cash flow to balance the debt, which is lacking now. Due to inflation, by holding back, you are bringing down your value by 6%-7% annually, and at that point you are actually discounting yourself. Then, you are not getting the equity to replace debt on your balance sheet. And the longer you keep the debt there, the more you acquire. When you cannot clear that, ultimately you don't have a balance sheet. And at that point, you have to go for a distress sale.

ML: Let us come to commercial real estate—how do you think this will perform?
Well, commercial real estate will be driven by commerce, which depends on our economy. When you have good industrial output, it will create the demand for allied services, which will again add to the demand. With growth of industries, you have new centres. But when GDP (gross domestic product) levels go down, we will see a slowdown. When there is a long-term flight of capital, inflation and negative sentiments start to impact the market and there is trouble brewing. So I am optimistic about the future of commercial real estate, but I hope the growth rate doesn't stagnate.

ML: How do you see sectors like retail, hospitality, education and healthcare contribute to the realty growth story?
Definitely, there are a lot of opportunities. But not all realtors specialise in these structures, so there can be strategic tie-ups with other companies, which can manage the space.

ML: What about the other issue that realtors complain about, which is about land acquisition?
If you are acquiring huge tracts for industrial purposes, then there are some problems. But, otherwise, lack of land records or things like that hardly matter. Trouble starts when you involve too many people, especially the government, in the land-acquisition process. For smaller projects, the only hitch is when that plot is slapped with multiple legislations.

ML: Keeping in mind all of this, do you see a 2008-type of slowdown coming? Some developers believe it won't be, because this time the costs are very high.
It depends on how you view the term 'slowdown'. There is no major price correction, like I said—though there can be some local variations. The premium, however, will get wiped out because there is some oversupply. But, on the other hand, basic costs will not come down. I talked about labour, construction, capital and raw material costs. Land prices are also very high, because there is a huge difference between government rates and market rates.

Also, with tier-2 and tier-3 cities developing, we will see less migration. And migration is always a big influence on demand. The oversupply means that the buyer has many options. The speculative price, I think will come down now, because there are no sales. So now, the developer cannot actually inflate the price, he is seeing what the real demand is. Now, the developer must hold on to a customer. Inflation is a big problem, and it will also affect speculative demand.  The investment is not realising any returns, and that I feel, is where we see a slowdown. And that is what is happening.




5 years ago

One woners as to the basis of the reasearch made by the author. Where the slowdown is and where the prices are going down are a mystery!

ONGC board approves red herring prospectus for proposed FPO

While the company’s board has cleared the proposed Rs11,500 crore share sale, the RHP will be filed with SEBI aster getting a nod from the Department of Disinvestment

New Delhi: The board of Oil and Natural Gas Corp (ONGC) has approved the red herring prospectus (RHP) for a proposed Rs11,500 crore share sale, but is still awaiting the Department of Disinvestment’s (DoD) nod for filing papers with the Securities and Exchange Board of India (SEBI), reports PTI.

The full board of ONGC, including three newly appointed independent directors, yesterday approved the RHP, an official said here today.

“We are ready. Whenever the DoD tells us, we will file the prospectus with SEBI,” he said. “The FPO will hit the market in three weeks from the filing of RHP.”

The government is selling 5%, or 427.77 million shares, through a follow-on public offer (FPO) and ONGC is assisting in the sale. “The call on when the FPO has to be launched will have to be taken by the government,” he said.

The official said the government earlier this month appointed three independent directors, including former RBI deputy governor Usha Thorat, on the board of ONGC, paving the way for the sale of shares in the state-owned firm.

The other independent directors appointed to the ONGC board include Prof Deepak Nayyar (ex-vice chancellor of the Delhi University) and former finance secretary Arun Ramanathan.

The appointment meant that ONGC now conforms to market regulator SEBI’s listing requirement of having an equal number of executive and non-executive directors.

The share sale was originally planned to happen in 2010-11, but was deferred to 5th April as the company did not have adequate number of independent directors on its board.

The FPO was then planned to be launched on 5th July, but was deferred due to the same reason.

ONGC has six functional directors, besides the chairman.

It also has two government-appointed nominee directors, taking the total strength of functional/promoter directors to nine.

In comparison, it has five independent directors and needs four more to meet SEBI’s listing norm.

But since the company does not have a full-time chairman and director (human resources), the appointment of three directors would help ONGC meet SEBI’s norm, the official said.

Post-FPO, the government’s stake in ONGC would come down to 69.14% from the existing 74.14%.

ONGC in February had received the report of independent auditors, who certified the company’s oil and gas reserves, a mandatory requirement for explorers making public offers.

Bank of America Corp, Nomura Holdings, HSBC Holdings Plc, JM Financial Services, Citigroup Inc and Morgan Stanley are managing the FPO.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Magazine and Lion Stockletter)