Chirpy tidings to lift spirit
G.Srinivasan
As 2017 draws to a
close, the Modi
government seems to
be apparently in a
benign state as far as
the management of
the economy goes, with the global
credit rating agency Moody's Investor
Services having raised recently
India's sovereign ratings, after a
hiatus of 13 years, from its lowest
investment grade to 'stable'.
In granting this much-desired or
desirable rating for attracting
sensible investors, especially that of
overseas genre, the rating agency did
not refrain from hedging its
pronouncement by broadly agreeing
to the fact that a lot remains to be
accomplished such as fixing the
implementation challenges of the
Goods and Services Tax (GST),
anemic private sector investment
and the laggard pace of resolution of
bad loans of banking and corporate
sectors.
Financing base
Narendra Modi
Upon cue or on its own gumption,
the Government showed the
requisite sensitivity to the woes of
domestic stakeholders when in the
month of November alone, it took a
flurry of meetings on the GST front.
The measures ranged from the GST
Council meeting at Guwahati
deciding to redressing the
operational and procedural
problems plaguing the small and
medium units and traders and paring
down the number of the steepest 26
per cent GST rate items from 250 to
50 to the approval of the creation of
the National Anti-Profiteering
Authority to ensure that
manufacturers/traders pass on the duty cut on GST to the eventual
consumers duly.
Moody's statement issued on
November 17 did say that "the
decision to upgrade the ratings is
underpinned by its expectation that
continued progress on economic and
institutional reforms will, over time,
enhance India's high growth
potential and its large and stable
financing base for government debt,
and will likely contribute to a gradual
decline in the general government
debt burden over the mediumterm".
For the beleaguered Modi Sarkar
facing the flaks of the worst attack on
the fallout of the first anniversary of
the demonetization that coincided on
November 8, tepid growth prospects
for the economy and the problems
plaguing the real sectors of the
economy, particularly manufacturing
and services, in coping with the initial
difficulties of the Goods and Services
Tax (GST), the Moody's message did
not come a day too soon to lift its
sagging spirit.
The timely upgraded rating also
made a palpable difference to the
acute embarrassment caused to the
government of the day by the disclosures of murky and shady tax
concealment bids of a few hundreds
of wealthy Indians in stashing their
income abroad in tax havens or no
tax regimes.
Paradise Papers
The International Consortium of
Investigative Journalists, which has a
syndicated network to bring to
limelight the earlier Panama Papers
and now the Paradise Papers (PPs),
had disclosed the sordid activities of
as many as 714 Indians, including
corporate firms in the latest one.
The Paradise Papers— in all 13.4
million financial documents, contain
scant or no direct evidence of
criminality but that does not mean
their publication is futile. With more
details seeping into the public
domains concerning who own what
and where, it facilitates the requisite
reform of flawed tax regimes so as to
make them more efficient and
equitable.
The egregious activities of the
plutocrats not only from India but
across major nations had wrought a
sort of entertainment, covering as
they did the dubious dealings of
quite unknown individuals to the
British Queen to Formula one driver
Lewis Hamilton as documented by
the Paradise Papers. That is the
reason why London-based weekly
The Economist said rather
defensively that an investment in a
Cayman-registered fund by the
Queen's private estate seems to have
carried no tax advantages.
It further argued that if investing
through offshore funds is itself
wrong, then millions of rich people
doing the same not only within U.K
but elsewhere too are guilty! It is also
interesting to note that numerous
private equity and hedge funds are
registered in tax havens in order to
preclude an extra layer of taxation in
the fund's country of domicile, not to
evade tax owed in the investor's
home country.
It needs to be noted that many of
the transactions reported in the PPs supervened years ago, when the
regulatory regime was not that strict
or non-existent in many a case and
the documents relate to a span of
five decades. As such, it would be
difficult to demonstrate the illegality
of many manifest cases now.
Tax havens
Auditors who normally shield to
safeguard their clientele carrying out
such tax tergiversation contend that
many of the transactions could also
be legal, with entities availing of the
tax arbitrage, benefitting by the
loopholes in the tax structure of
countries.
It is revealing that the multiagency
group constituted by the
Government to investigate the earlier
Panama Papers found that of the 426
cases that featured in it, as many as
279 were non-actionable due to the fact that the entities were either nonresidents
or no ulterior motive could
be ascribed to the transactions.
Persisting with the same spirit to
ferret out facts and spare the tax
unpaid by nefarious elements
operating through these subterfuges
from a safe tax haven that the
government ordered a multi-agency
probe into the PPs too and this has
been hailed as a right step. The
European Union too called for a black
list of tax havens to be drawn up by
next month.
Double tax
Already, the Modi Government
has brought into focus a series of
well-meaning changes to existing
laws to prevent tax evasion through
tax havens. New Delhi was prompt in
tweaking the Indo-Mauritius Double
Tax Avoidance Agreement last year to
render investments through the
Mauritius route subject to capital
gains tax from this year and a similar
one with Cyprus and Singapore. This
undoubtedly establishes the resolute
stand of the authorities to brook no
such tax evasive techniques by the
ultra rich.
The General Anti –Avoidance
Agreement has also been put in place
from April this year which duly
frowns upon innovative tax deals by
subjecting them to prompt scrutiny.
Besides, as a responsible member of
G-20, India is already a member of
the inter-governmental think tank of
the 34 rich nations, the Organization
for Economic Cooperation and
Development's (OECD) ongoing fight
against tax evaders, particularly by
big multinational corporations
(MNCs) through signing the Base
Erosion and Profit Shifting (BEPS)
agreement. BEPS-led initiative by the
OECD has exposed the MNCs'
ingenious tax-planning by duly
exerting pressure to fix the existing
fragile rules and treaties governing
cross-border business taxation. This
is important because OECD reckons
the costs up to 240 billion dollars in
lost tax revenue to the countries
across the universe.
The point to ponder over is that it
is not only the offshore tax havens but also in some major business
hubs such as London, Ireland and
Luxembourg and to a lesser extent
the Netherlands that the MNCs have
engineered elaborate tax structures.
That is the reason why the EU was
vindicated when it slapped heavy tax
penalty on Apple operating from
Ireland, contending it constituted
illegal state aid! In fine, the leaks of
massive haul of records two years
ago known as the Panama Papers
and the latest batch consisting
mainly of leaked records from a
boutique Bermuda firm christened
as the Paradise Papers show the
battle against tainted money that
escape domestic tax net is a
protracted one with each nation
doing its mite to track the trickster so
that more avenues for revenues to
promote development and growth could be ensured.
Building infrastructure
With a tax to GDP ratio that is
almost half of the rich countries,
Indian authorities can ill-afford to
ignore every inkling they get to spot
the tax fugitives so that the country's
dream of reaching a pole position in
the world economy within a few
years would be realized and
realizable.
The authorities need to be proactive
in following up the clues and
the multi-agency group should
traverse the extra mile to wrest the
best result so that the resources
belonging to the nation and which
would supplement the domestic
efforts to build physical and social
infrastructure would be efficiently
utilized for the weal of all, policy
wonks wryly say.