How can black money be brought back to India?

The globalisation and liberalisation of economic activity has resulted in an escalating growth in transnational business, thereby transforming the world to one without borders. Such inclusion, coupled with the complexities of financial systems around the world, has deprived governments of their share of revenues. 

Tax havens are a reality of today’s globalised economic landscape. While on one hand they promote tax competition, on the other, if abused and opaquely regulated, tax havens can cost exchequers of various countries vast sums of money, forcing governments to keep tax rates high. 

The global milieu has turned resolutely against opaque banking secrecy norms. The first of such strides can be in the form of new money laundering laws in US (back in 2001) requiring sharing of information between financial institutions and enforcement agencies, which was also followed by other countries, wherein the focal point remained tracking terror funding and not tax evasion. 

Further, the G20 in April 2009 also pressed for counter-measures against tax havens and non-cooperative financial centres that had agreed to internationally-accepted tax standards on sharing tax information, but had not substantially implemented them. At the G20 meet in Seoul last year, the use of initiatives and statistics on subsequent significant increases in revenues from tax evaders across the globe was put forward, thereby re-emphasising the process of exchange of information. 

In wake of such losses to the government exchequer due to tax evasion and money laundering and the need of increased government spending due to the global economic crisis hurting India as well, a public interest litigation (PIL) seeking directions to the Centre to bring back crores of rupees illegally squirreled away in secret foreign bank accounts by tax evaders and hawala dealers was recently preferred by a group of eminent personalities. 

The executive has sought ‘confidentiality’ as an argument to not make publicly available the information received about Indian account-holders from foreign banks. Also, the recent news of bankers’ involvement in a conspiracy to hide accounts in India has again brought the issue of black money to the forefront. 

So, is there an instant solution to bring back the black money sheltered in tax havens or can it only be a gradual process? The immediate step here seems to be introduction of an amnesty scheme for voluntary disclosure, both outside and inside the country, so that parallel flow of black money in the Indian economy is eliminated. 

At this stage, what becomes necessary is transparency of the tax system and an emergent need for exchange of information that has been acknowledged by leaders the world over. 

The importance of information exchange, though slightly late, has been realised by our government. Cross-border economic offences can now be brought under the scanner, because the information available will definitely open more evidentiary and procedural doors, which were shut before the framework of exchange of information agreements. Other bilateral agreements with tax havens or banking havens and changes to the existing exchange of information mechanisms embedded in the double taxation avoidance agreements might prove beneficial in future, but one must wait and see how these existing agreements are enforced and how the newly-cropped path of exchange of information is treaded along. 

However, the lean response from various countries to the request of enforcement directorate (ED) — the agency investigating money laundering and violation of foreign exchange norms in spectrum allocation in the most celebrated case pending before the Supreme Court on second-generation telecom licences — can be a major setback to the process of initiating exchange of information in order to ensure that the proceeds of black money are routed back to India through these companies based abroad. 

Another significant step has been the strengthening of the administrative machinery by seeking to set up eight more overseas income-tax units by the Central Board of Direct Taxes , an apex administrative body. Two such units are already functional, one each in Singapore and Mauritius. 

Further, with the recent amendment to the money laundering law in India widening the horizon available to the investigating officer and new set of legislative framework for tax in terms of the Direct Taxes Code incorporating provisions for checking illicit outflow of funds expected to be effective from April 1, 2012, the black money story should be in check.