Black money stashed abroad: How can we get it back?

A number of countries have put in place amnesty schemes—with harsh penalties for any violations. It is high time India follows suit

A report from Vienna on 6 October 2011 quotes a Ministry of External Affairs Secretary—“The new tax information exchange treaty is ratified by the Swiss Parliament paving way for obtaining data on black money stashed in Switzerland. It will take effect from 1 January 2012 for Switzerland and 1 April 2012 in India, the respective fiscal year commencements. The protocol amending the Indo-Swiss Double Taxation Avoidance Agreement was earlier concluded in New Delhi on 30th August this year. The revised treaty now allows India access (to) tax-related information from Switzerland with prospective effect.” Now that an official mechanism is in place, it is all the more reason that Indian authorities go out rigorously ferreting out tax evaders.

Innumerable committees have gone into the issue from time to time. Even recently, another extremely high-level committee has been appointed and separately, a Special Investigation Team headed by a retired Judge has been appointed by the Supreme Court. Also presently being heard in the apex court is a high-profile PIL (Public Interest Litigation), filed by Senior Counsel Ram Jethmalani, an MP, with KVM Pai, a former Chief Commissioner of Income-Tax joining in as an intervener. Mr Pai has a lot to say.

Yet not one, including the government and taxation mandarins nor the Planning Commission or RBI (Reserve Bank of India) or financial wizards, is in a position to come out—even with any degree of reasonable certainty— the estimates, or even guesses, of the quantum of black money in circulation in the parallel economy in India and the volumes/extent of monies stashed abroad. So much so, that the numbers range anywhere from thousands of billions—to trillions of dollars. No one even has contested their veracity or accuracy!

The Swiss authorities and their highly-secretive bankers through this year have had to provide data by meekly succumbing to the pressures from the G-20 governments, the OECD, the powerful US Federal Reserve, Her Majesty’s Treasury and the French, German and Dutch governments.

Earlier, through their diplomatic representatives at New Delhi, the Swiss had indicated their willingness to furnish the information on a request through proper channels. They very rightly refused to accede to roving enquiries—calling them “throwing phone books of vague names without any specific charges against designated individuals.”

Against the prevailing slowdown in the US, which is also observed in Portugal, Italy, Greece, Spain, and Iceland along with France and the UK to a certain extent, it should not be difficult to weed out the illegally-stashed money, given India has the political will.

With the fall in the values of world currencies, most jittery Indians with monies abroad must be itching to get their hoarded wealth to safer conditions back home—at any cost. This is the right time for the Government of India to cash in on the opportunity to arm-twist the offenders using the carrot & stick approach. This ought to be a last one-time ‘amnesty’ to be kicked in by imposing penalties strong enough to deter future wrongful acts of  violations of tax and exchange laws, by conveying a strong message that such acts will result in dire consequences. The final offer should come at a cost that must be severe enough to hurt, if the amnesty scheme is not availed of by defaulters—this should be the price for legitimising past tax-evasion criminal acts.

The UK Treasury envisages bulk deals involving flat 50% levy on assets as ‘retrospective’ fees on unpaid taxes to legitimise Swiss accounts by calling on the Swiss to tax the bank accounts of British nationals and pass on the money so collected to the UK Treasury without disclosure of names. Her Majesty’s Treasury conservatively estimates it to be in the region of up to 9 billion pounds. It has introduced a 200% penalty for offshore tax evasion to punish the use of jurisdictions that do not share tax information. Even before this, the UK had schemes for undisclosed earnings in foreign bank accounts. Recently, there has been a proposal which will enable a defaulter to avoid penal action by paying a penalty of 100% by way of a simple declaration.

The French demanded and collected data from offshore banking headquarters of HSBC in Germany. This data to be made use of in the French Revenue initiative is expected to garner additional revenue of 500 million pounds from approximately 300 billion is to be repatriated to France.

The Italians are reported to have disclosed 95 billion pounds held in previously undeclared assets under recent amnesties. Over 98% was repatriated from assets held offshore that included works of art, sculpture, jewellery, cars and yachts. The Italian tax authorities, in the last 8 years alone, launched three schemes levying tax rates varying from 5% to 7% of the value of assets. The sources were not sought but the authorities made it clear that this was a definitive one-time clemency law, which would not be repeated. It was expected to net further 30 billion pounds by way of additional revenues and the money repatriated from Switzerland alone was estimated at over 40 billion.

The Dutch voluntary disclosure initiative for undisclosed foreign accounts has reportedly netted in disclosures of one billion pounds. Over the years, Ireland and Columbia are also stated to have tax-amnesty success stories.
The Indian CBDT (Central Board of Direct Taxes) ought to draw from the experiences listed above and from other countries to kick in effective measures to forestall further tax evasion and avoidance, subject incomes and wealth to intense scrutiny to reduce tax haven attractiveness. There is a need to bring in the increase in the cost for non-compliance, by levy of higher fines and penalties and stricter audit scrutiny for the delinquent taxpayer, by an increased sustained enforcement activity. The punishment ought to be imprisonment, in addition to monetary penalty, as in the USA. The fear of the devil is enough deterrent to avoid such crimes.

Looking at the state of the global economy—and those economies of ‘developed’ countries, it would make imminent sense if defaulters coughed up the requisite penalty and bring back the illegal money which they had siphoned off from India and stashed away in foreign ‘safe’ havens. Will the government have the foresight to act in time?

(Nagesh Kini is a Mumbai based chartered accountant turned activist.)

1 decade ago
Amnesty schemes are positive ways to get the black money back to India. NHAI, REC, RBI all have the technical knowhow to deal with large finds to be diverted to infrastructure development.
Hence "Infrastructure Bonds" with a ten year tenure and 6% coupon rate(paid annually) should be attractive enough for black money holders to invest. As the list is going to be available the Govt should start prodding the offenders with notices for compliance. Penalty should not only be imprisonment but also the confiscation of all assets gained out of the black money. But one very important question that begs answer is whether the politician who is the kingpin behind this ailment ,would permit a treatment for cure?
Vikas Gupta
Replied to RNandakumar comment 1 decade ago
Yes, u r right that could this happen in India too where most of our Politicians & Bureaucreats are the most Corrupt persons?
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