What obstacles are preventing black money retrieval by the government

John Samuel Raja D & M Padmakshan, ET Bureau Nov 15, 2011, 12.24pm IST

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tax treaties| tax haven| tax agreements| money laundering| Hasan Ali| Financial Action Task Force| Enforcement Directorate| Black Money

From new agreements with tax havens to dedicated teams tracking data, the government says it's doing lots to crack down on black money. But it all falls flat because the authorities don't have the laws, skills and political will to translate this into results. Also read: Six ways in which black money is created

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Ten means to put an end to black money issue Many means, but few ends It's a telling statement that the government's two biggest successes in catching Indians with black money in offshore banks have been the result of information that came to it providentially. In March 2009, Germany shared a list that contained names of 26 Indians having unreported accounts with LGT Bank in Liechtenstein. And, earlier this year, France shared details of 700 accounts of Indians in HSBC Bank Geneva. France and Germany bribed staffers of the two banks for information on their citizens, and India happened to be an accidental beneficiary. The Indian government says once its new and improved tax treaties with various countries kick in, it can chase down black money held by Indians on its own. Finance minister Pranab Mukherjee is prone to launch into a litany on the tax treaties being enforced, signed, negotiated or renegotiated by India. When seen along with the tax reform being undertaken within, he believes, this could be an inflexion point in the drive to recover black money. Arun Kumar, who has written several books on black money, says it does come down to the government not because of what it is doing, but because of what it is not doing. "The problem is political," says the professor at the Jawaharlal Nehru University. Adds a senior income-tax official in Mumbai, speaking on the condition of anonymity: "The IT department itself cannot initiate any drive on its own to bring black money stashed in offshore banks as it is a policy decision to be taken by the Central government." That wavering intent colours everything the government has done so far on black money, be it on opening lines of communication outside, or connecting data and transaction sources inside for solid leads, or empowering tax officers. It's why, as the following two stories show, while UK and Germany are moving purposefully to bring back billions, India is still flailing around. Tax Treaties: One Rule for UK, Another for India

The homepage of Switzerland's finance ministry website features two tax treaties the poster boy of banking secrecy has negotiated with United Kingdom and India this year. The two treaties are studies in contrast, a proof that developing nations have little leverage with tax havens to part with information. The treaty with UK allows London to tax all its citizens holding deposits in Switzerland. That too retrospectively, which means evaders will have to pay up. And punitively: the principal amount will be taxed between 19% and 34% depending on how long the deposits have been held. And, income from deposits will be taxed between 27% and 48%.

So, a UK citizen holding $100 million in Swiss banks will have to pay up to $34 million as tax. Further, if the deposit earns interest of, say, $10 million, an additional tax of up to $4.8 million will be levied annually. Of course, if it is legitimate money and has been taxed, the UK citizen can claim a set off.
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The UK expects to add 5 billion (about Rs 38,500 crore) to its coffers. On top of this, each year, UK can seek tax-related information of 500 individuals from the Swiss, who are complying, as evidenced from Switzerland's offer to make a down payment of 385 million towards unpaid taxes of UK citizens. While UK's treaty with the Swiss strives for universal coverage of its citizens, India's double taxation avoidance agreement (DTAA) is selective and puts the onus on Indian authorities to provide evidence of suspicion. Both treaties have the same point of origin -- the model agreement of the Economic Cooperation and Development (OECD) but they are far removed. INDIVIDUAL, NOT INSTITUTIONAL The Indian government cannot seek information from the Swiss authorities retrospectively. It can do so only from April 2012, though it's not clear whether this means it can ask for information only for transactions done after that date. The tax rates are lower: nothing on the principal and the lowest rate India levies on OECD nations 10% for interest income. So, Switzerland deducts 10% tax on all deposits held by Indians and gives a cumulative amount to India each year. However, it does not disclose the identity of the deposit holders or how much each held. The legitimate money seeks a refund for double taxation with the Indian authorities. The illegitimate money does not mind paying the 10% and staying silent.

Readers' opinions (23)

Sort by:Newest|Oldest jtejraj lodha (Bangalore) 22 Nov, 2011 02:04 PM what an apathy at our disposal! We do not initiate the process to solve the problem but to find out as to how and why it had happened. The analysis quite succintly brings out the whole approach in pursuing the matter. Look at UK it wants to get the money held abroad by its nationals and our leaders are shooting in the dark. Chances are more misses than targets. When will we act as a one nation.

Javak (Mumbai) 17 Nov, 2011 07:33 PM "The two treaties are studies in contrast, a proof that developing nations have little leverage with tax havens to part with information." It's nothing to do with leverage, but with intent of the government which is deliberately selling the country short because of its own vested interest. We all know how the government was forced to act albeit most reluctantly by the SC. It is going through the motions but has zero desire to really do anything serious to get the money, leave alone identify and punish the criminals. snpd (Kol) replies to jtejraj lodha 27 Nov, 2011 01:51 AM Never, Govt is allowing FDI in retail to augment resources to create infrastructure for organised retailing. Had the Govt followed a path to bring back the black money, the above decision might have not been taken. sudhir karnik (Pali Hill , Mumbai) 15 Nov, 2011 11:30 PM Cardinal rule You do not cause harm to your own clansmen . How can any Govt. official sanction such an operation ? The only chance of the facts being exposed is IF we as citizens collect a fund . Pay a money tracking agency , ie. a Cash Forensics Expert preferably a foreign one ( an Indian Co though capable , will be too scared to do the job ) and publish the Data with the supporting documents . The other advantage of using this method is that even if the money is moved to avoid detection it will be traced . Then the clansmen will have no where or way , to hide . Is Anna Hazare listening ? To catch these modern day criminals contemporary and Cyber Methods not Gandhian ones have to be used . I had written earlier that the noble movement initiated by him runs the risk of not succeding because MOST of his team members do not have any organisation or leadership skills He needs people of national consequence like the Narayan Murthy s. Having two lawyers in the core team of about 5 is Passe . Employ lawyers but core team members should be chosen for their intellectual etc. capabilities . N Murthy will understand what I have suggested but a Bhushan will not even understand what a Forensic expert is . I feel like childishly saying " I told you " because months ago , in these very columns one had warned that a shabbily constituted team will cause embarrasment to a Great and Upright person like Anna Hazare and his Noble objectives . FAROOQ DAWOOD (MUMBAI) 15 Nov, 2011 10:15 PM WHY IS THE GOVERNMENT NOT PUSHING HARD TO GET BACK THE BLACK MONEY HELD BY POLITICIANS AND MINISTERS IN THE UNION GOVERNMENT AND INDUSTRIALISTS. FINDING EXCUSES TO GET THE TAXATION TREATY RENEGOTIATED WITH THE CONCERNED GOVERNMENTS . IF THE GOVERNMENT IS CONCERNED ABOUT THE WELFARE OF THE PEOPLE THEN IT CAN GET DONE WITH THE TREATIES WITH THE GOVERNMENTS. BUT THE CULPRITS POLITICIANS AND MINISTERS MUST BE BLOCKING THE BILL IN PARLIAMENT. SO THAT THEY HAVE ENOUGH TIME TO REMOVE THE MONEY AND STASH AWAY IN OTHER COUNTRIES. FEAR ALLAH ALMIGHTY AND FEAR DEATH . TAKE THE EXAMPLE OF UNDERWORLD DON . HAVE YOU READ THE NEWS YESTERDAY OF THE DON. DEATH IS CERTAIN ON EVERY HUMAN BEING. SO DO SOMETHING GOOD FOR THE NATION AND ITS PEOPLE SO THEY CAN SAY GOOD ABOUT YOU. Solomon (Mumbai) replies to sudhir karnik 18 Nov, 2011 08:18 PM How will the banks disclose information to a money tracking agency not ordered by the govt. They can simply refuse. right? karthik (united kingdom ) 15 Nov, 2011 09:33 PM By the time these new treaties are signed, there will be no amount left in those banks, Most of them are moving it to singapore and other nation's banks. Dirty politicians. Kochu (Mumbai) replies to FAROOQ DAWOOD 17 Nov, 2011 07:42 PM The foxes have been guarding the henhouse. These crooked politicians fear no laws, no God, no people.They have gone completely mad with money and power. But you are right. They and their families will be punished and justice will soon be done to the poor people of India whose money they have stolen without pity.