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Thin Dividing Line: India, Mauritius and Global illicit financial flows
The use of tax havens to not just avoid payment of taxes but also evade them has attracted considerable attention across the world and in India. Tax havens, also known as low-tax or no-tax jurisdictions, enable ultra-rich individuals and corporate entities, to not pay taxes, legally and illegally. There is a thin dividing line between tax avoidance (often described as ‘good’ tax planning) and tax evasion (deemed criminal in most countries). In fact, the dividing line is so thin as to be virtually non-existent. Tax havens have been used by the rich and the powerful to benefit themselves at the expense of the poor and the underprivileged. This had led to widening inequality between citizens and across countries. This book looks at the India-Mauritius Double Taxation Avoidance Agreement in a global context of growing illicit financial flows. This agreement is important because 40 per cent of total inflows of foreign money into India comes through Mauritius. Also in the book, you will read about scandals around IPL, known international companies which came under scanner for tax evasion, black money, havala and an international criminal industry employing bankers, lawyers and corrupt bureaucrats who run an economy parallel to world economy.
- GenresBusiness
304 pages, Kindle Edition
Published September 30, 2017
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December 28, 2018
Nobody wants to pay tax if they can help it. This is evident in the mad rush for finding some clauses in the Income Tax Rules which allows money to be exempted from the total income. If nothing can be dug out of the murky depths of the statute book, we look for loopholes in the text of the law. If you are lucky, you’d unearth some precious nuggets. Haven’t you seen people claiming exemption for house rent while still living in their parents’ home? Naturally, entrepreneurs also try to get rid of the tax burden as far as possible. Being backed up by professional talent, they can cook some idea up, which barely satisfies the letter of the law. They are also given a golden opportunity to operate from a foreign country where the tax regime is much lighter. Routing of investment through a foreign channel is risky, but there is scope for doing it without singeing one’s fingers. The dividing line between tax avoidance which is legal (often described as good tax planning) and outright tax evasion which is illegal is a razor thin one. Black money, that is nothing but income not known to the authorities adds to the complexity when it gets mixed up with good money coming in from tax havens. This book is all about the trajectory of foreign investment coming into India and why it should be suspected that a large portion of it is indeed covertly owned by Indians themselves. Paranjoy Guha Thakurta is a senior journalist having an experience spanning four decades and cutting across different media. He is a writer, speaker, anchor, interviewer, teacher and commentator in English, Hindi and Bengali. The co-author, Shinzani Jain, is an independent researcher and a law graduate.
We now know it for certain that India owes the surge in its economic growth to the financial reforms undertaken by Narasimha Rao in the 1990s. This ruffled many feathers of armchair theoreticians and leftist academicians who were already painfully stung by the collapse of communism in 1991. Poverty was the utmost concern in that era. But looking back at our society after the interval of a quarter-century, the good results are there for all to see – poverty has indeed receded, real income levels increased and the infrastructure has recorded a quantum leap. In spite of this, the leftist intellectuals now come up with another criterion to deride the progress made. Rising inequality in income is their present concern! Earlier, the ace criticism was founded on a human emotion – hunger. After 25 years, they quietly buried it and now hook on to another human emotion – jealousy! It is true that corruption and its byproduct of black money are still rampant. The book estimates that between 1999 and 2009, $ 8 trillion was transferred by the elites of developing countries to the developed world. This consisted of permanent transfer of wealth in the form of real estate, bullion and equity investments. Rs. 600,000 crores is reported to have flowed out of India in the year 2012 alone. Since the liberalization of the economy in the 1990s, successive governments in India have expressed great willingness to embrace the current global economic order. Thakurta accuses that at the same time, a substantial section of the population remains poor, illiterate and under-nourished (p.34-5). Such intellectual somersaults cannot hoodwink the discerning reader who can realize that such evils are not caused by liberalization per se. The book gives great emphasis on the unrealistic and politically aligned opinion of leftist academicians and thinkers. JNU professors such as Arun Kumar and Biswajit Dhar permeate the discussion to saturation levels.
This book focusses on the Mauritius route taken by incoming foreign investment because 40 per cent of the total inflow of foreign money is channeled through that country. This island-nation is especially suited for Indian business as two-thirds of the inhabitants of the country are of Indian origin. The then prime minister Indira Gandhi signed a Double Taxation Avoidance Agreement (DTAA) with Mauritius in 1982. This was a measure to promote investment in India which made the profit gained from short-term capital gains tax-free for companies registered in Mauritius. Round-tripping of black money was the result, when Indian companies returned their ill-gotten wealth under the cover of shell companies. The author feels that all governments that ruled India were reluctant to deal with this problem. Participatory Notes (P-Notes) is another tool used by brokers of illicit money to return their booty back to India. P-Notes, also known as ODI (Overseas Derivative Instruments), are financial instruments issued by registered FIIs to overseas investors who wish to invest in Indian stock markets without revealing their identities or registering themselves with the market regulator. These were primarily used for money laundering, speculation and jacking up of share prices. In 2012, 50-60 per cent of all money came in through FII was by P-Notes. However, the government tightened the regulations and by 2016, it has dwindled to roughly 10 per cent.
The logic of the authors is that the foreign investment coming to India consists of black money owned by Indians and money channeled through tax avoidance techniques of companies, especially MNCs. The latter is not exactly illegal as these firms use loopholes in the system. However, since the dividing line between the two is very thin, allegations are heaped on the latter without much substance. All MNCs are made culprits of tax evasion. Apple’s tax avoidance in Ireland is trumpeted as an illustrative example when even that country’s government has appealed against the EU decision to slap a crippling penalty on the American phone maker on the grounds of unfair investigation. The case of Vodafone in India where the company was penalized with a demand notice from the Income Tax authorities for an astronomical sum of Rs. 12,000 crores is also discussed. The authors have miserably failed to present the causes leading to such a notice in a way that can be understood by ordinary readers. Anyway, the Supreme Court of India quashed the notice. Thakurta then comes up with a preposterous argument that the learned judges have not understood the spirit of the law on which they adjudicated. The bureaucracy was not going to take it lying down. They forced the government in 2012 to bring in an amendment to the Income Tax Act and to give it retrospective powers from the year 1962! This change in the rule after the apex court had decided in Vodafone’s favour made that company’s action specifically criminal and at the same time made a mockery of the concept of Rule of Law. Even such a shocking instance of bureaucratic overreach and a clear instance of creating avenues for collecting bribes is justified by the authors on the sole reason that it was directed against an MNC. The authors’ political affiliation to the Left is clearly visible in such arguments. Moreover, regulations such as the GAAR (General Anti-Avoidance Rules) are only going to give more teeth to a corrupt bureaucracy unless more social supervision is put in. It must also be accepted that deregulation and liberalization of the Indian economy led to an acceleration of the outflow of illicit money. The acceleration was caused by the increasing wealth that began to be generated as a consequence of economic reforms and not due to any defects in the policy. It may be remembered that earlier the country’s gold had outflowed in 1991!
The book examines whether the Narendra Modi-led government had kept its promise to bring back black money and sanitize the economic environment in the country. Some measures have been introduced, but the consensus is that it is not enough. The Undisclosed Foreign Income and Assets (Imposition of Tax) Act of 2015 and the Benami Transactions (Prohibition) Act of 2015 are great steps, by giving the government enough muscle to go after the tax evaders. But the results are still awaited. Much discretionary powers are still granted to the bureaucrats. Modi also amended the Mauritius DTAA and made the short-term capital gains taxable. The Voluntary Disclosure of Income Scheme of 2016 exposed assets worth Rs. 65,000 crores, out of which Rs. 30,000 crores was collected as tax. The Demonetisation of 2016 was a courageous decision, but it doesn’t seem to have elicited the results hoped for. Even with these measures, the authors are unhappy with Modi’s perceived friendliness to big business. They even laugh at the concept of ease of doing business.
The book is based on a documentary by Thakurta on black money and the workings of tax havens. Probably, this accounts for one of the main reasons for its aridness. The argument is totally one-sided like the propaganda leaflet of a revolutionary outfit. Opinion is not sought from industry-friendly sources to make the analysis balanced. Even claims made by religious NGOs like the Christian Aid are given prominent attention and used for building up the case against corporates. Each chapter’s heading in the book offers as much readability as those from a thick textbook of accountancy or economics. The book is not at all interesting to read on account of the shallowness and political orientation of the arguments and also because of the fact that it is not reader-friendly.
The book is not recommended.
We now know it for certain that India owes the surge in its economic growth to the financial reforms undertaken by Narasimha Rao in the 1990s. This ruffled many feathers of armchair theoreticians and leftist academicians who were already painfully stung by the collapse of communism in 1991. Poverty was the utmost concern in that era. But looking back at our society after the interval of a quarter-century, the good results are there for all to see – poverty has indeed receded, real income levels increased and the infrastructure has recorded a quantum leap. In spite of this, the leftist intellectuals now come up with another criterion to deride the progress made. Rising inequality in income is their present concern! Earlier, the ace criticism was founded on a human emotion – hunger. After 25 years, they quietly buried it and now hook on to another human emotion – jealousy! It is true that corruption and its byproduct of black money are still rampant. The book estimates that between 1999 and 2009, $ 8 trillion was transferred by the elites of developing countries to the developed world. This consisted of permanent transfer of wealth in the form of real estate, bullion and equity investments. Rs. 600,000 crores is reported to have flowed out of India in the year 2012 alone. Since the liberalization of the economy in the 1990s, successive governments in India have expressed great willingness to embrace the current global economic order. Thakurta accuses that at the same time, a substantial section of the population remains poor, illiterate and under-nourished (p.34-5). Such intellectual somersaults cannot hoodwink the discerning reader who can realize that such evils are not caused by liberalization per se. The book gives great emphasis on the unrealistic and politically aligned opinion of leftist academicians and thinkers. JNU professors such as Arun Kumar and Biswajit Dhar permeate the discussion to saturation levels.
This book focusses on the Mauritius route taken by incoming foreign investment because 40 per cent of the total inflow of foreign money is channeled through that country. This island-nation is especially suited for Indian business as two-thirds of the inhabitants of the country are of Indian origin. The then prime minister Indira Gandhi signed a Double Taxation Avoidance Agreement (DTAA) with Mauritius in 1982. This was a measure to promote investment in India which made the profit gained from short-term capital gains tax-free for companies registered in Mauritius. Round-tripping of black money was the result, when Indian companies returned their ill-gotten wealth under the cover of shell companies. The author feels that all governments that ruled India were reluctant to deal with this problem. Participatory Notes (P-Notes) is another tool used by brokers of illicit money to return their booty back to India. P-Notes, also known as ODI (Overseas Derivative Instruments), are financial instruments issued by registered FIIs to overseas investors who wish to invest in Indian stock markets without revealing their identities or registering themselves with the market regulator. These were primarily used for money laundering, speculation and jacking up of share prices. In 2012, 50-60 per cent of all money came in through FII was by P-Notes. However, the government tightened the regulations and by 2016, it has dwindled to roughly 10 per cent.
The logic of the authors is that the foreign investment coming to India consists of black money owned by Indians and money channeled through tax avoidance techniques of companies, especially MNCs. The latter is not exactly illegal as these firms use loopholes in the system. However, since the dividing line between the two is very thin, allegations are heaped on the latter without much substance. All MNCs are made culprits of tax evasion. Apple’s tax avoidance in Ireland is trumpeted as an illustrative example when even that country’s government has appealed against the EU decision to slap a crippling penalty on the American phone maker on the grounds of unfair investigation. The case of Vodafone in India where the company was penalized with a demand notice from the Income Tax authorities for an astronomical sum of Rs. 12,000 crores is also discussed. The authors have miserably failed to present the causes leading to such a notice in a way that can be understood by ordinary readers. Anyway, the Supreme Court of India quashed the notice. Thakurta then comes up with a preposterous argument that the learned judges have not understood the spirit of the law on which they adjudicated. The bureaucracy was not going to take it lying down. They forced the government in 2012 to bring in an amendment to the Income Tax Act and to give it retrospective powers from the year 1962! This change in the rule after the apex court had decided in Vodafone’s favour made that company’s action specifically criminal and at the same time made a mockery of the concept of Rule of Law. Even such a shocking instance of bureaucratic overreach and a clear instance of creating avenues for collecting bribes is justified by the authors on the sole reason that it was directed against an MNC. The authors’ political affiliation to the Left is clearly visible in such arguments. Moreover, regulations such as the GAAR (General Anti-Avoidance Rules) are only going to give more teeth to a corrupt bureaucracy unless more social supervision is put in. It must also be accepted that deregulation and liberalization of the Indian economy led to an acceleration of the outflow of illicit money. The acceleration was caused by the increasing wealth that began to be generated as a consequence of economic reforms and not due to any defects in the policy. It may be remembered that earlier the country’s gold had outflowed in 1991!
The book examines whether the Narendra Modi-led government had kept its promise to bring back black money and sanitize the economic environment in the country. Some measures have been introduced, but the consensus is that it is not enough. The Undisclosed Foreign Income and Assets (Imposition of Tax) Act of 2015 and the Benami Transactions (Prohibition) Act of 2015 are great steps, by giving the government enough muscle to go after the tax evaders. But the results are still awaited. Much discretionary powers are still granted to the bureaucrats. Modi also amended the Mauritius DTAA and made the short-term capital gains taxable. The Voluntary Disclosure of Income Scheme of 2016 exposed assets worth Rs. 65,000 crores, out of which Rs. 30,000 crores was collected as tax. The Demonetisation of 2016 was a courageous decision, but it doesn’t seem to have elicited the results hoped for. Even with these measures, the authors are unhappy with Modi’s perceived friendliness to big business. They even laugh at the concept of ease of doing business.
The book is based on a documentary by Thakurta on black money and the workings of tax havens. Probably, this accounts for one of the main reasons for its aridness. The argument is totally one-sided like the propaganda leaflet of a revolutionary outfit. Opinion is not sought from industry-friendly sources to make the analysis balanced. Even claims made by religious NGOs like the Christian Aid are given prominent attention and used for building up the case against corporates. Each chapter’s heading in the book offers as much readability as those from a thick textbook of accountancy or economics. The book is not at all interesting to read on account of the shallowness and political orientation of the arguments and also because of the fact that it is not reader-friendly.
The book is not recommended.
January 23, 2018
Black Money has been the hot topic of discussion on Social Media as well as in the regular Media for several years now; yet, few books have come to my notice that deal with this topic. The current book under review – Thin Dividing Line : India Mauritius and Global Illicit Financial Flows by Paranjoy Guha Thakurta & Shinzani Jain is one book that breaks this trend, and takes a deep and in-depth look at at least one aspect of this matter in a no-holds barred factual and detailed analysis of Global “Hot Spots” aka Tax Havens.
This is not easy territory to tread on; quite the reverse in fact. This is a complex topic at the best of times – in fact, it is more than complex. It does not make for easy study, or compilation, or sources, or indeed availability of facts and resources. You cant pick your facts easily; you have to hunt, study, research and go deep, be a miner and dig deeper than deep. This is also an approach that is bound to cause exceeding discomfort to more than a few “Ladies & Gentlemen”. What is more, putting it all in a book is doubly hard – as the content is not easy to fathom, even for a regular reader of Economics tomes like self.
The authors deserve a round of applause for this effort; in fact, they might even deserve a prize for this research; for it is nothing less that a full-scale research. A research pain-stakingly done, points – factors – facts – laws – business moves n maneuvers – legal moves n maneuvers – diplomatic n maneuvers – international n maneuvers all painstakingly and thoroughly analysed, put together, presented to present a complete and comprehensive picture in front of the reader. That is the tremendous scope of this project: Local facts and factors; local business; national business; Indian Laws; International Laws; Diplomacy; and Laws/approach of the Developed World.
Read More : https://reflectionsvvk.blogspot.in/20...
This is not easy territory to tread on; quite the reverse in fact. This is a complex topic at the best of times – in fact, it is more than complex. It does not make for easy study, or compilation, or sources, or indeed availability of facts and resources. You cant pick your facts easily; you have to hunt, study, research and go deep, be a miner and dig deeper than deep. This is also an approach that is bound to cause exceeding discomfort to more than a few “Ladies & Gentlemen”. What is more, putting it all in a book is doubly hard – as the content is not easy to fathom, even for a regular reader of Economics tomes like self.
The authors deserve a round of applause for this effort; in fact, they might even deserve a prize for this research; for it is nothing less that a full-scale research. A research pain-stakingly done, points – factors – facts – laws – business moves n maneuvers – legal moves n maneuvers – diplomatic n maneuvers – international n maneuvers all painstakingly and thoroughly analysed, put together, presented to present a complete and comprehensive picture in front of the reader. That is the tremendous scope of this project: Local facts and factors; local business; national business; Indian Laws; International Laws; Diplomacy; and Laws/approach of the Developed World.
Read More : https://reflectionsvvk.blogspot.in/20...
April 26, 2023
An interesting read but a dry read, covers many instances of tax havens and illicit financial flows.
Could have been more interesting with some graphics.
Could have been more interesting with some graphics.
Displaying 1 - 3 of 3 reviews