Issue :   
December 2017 Edition of Power Politics is updated.         December 2017 Edition of Power Politics is updated.
Issue:Dec' 2017


Chirpy tidings to lift spirit


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.