India is beginning to take the threat tax havens pose to it very seriously, partly because of the work my friends at Global Financial Integrity have done in exposing the enormous costs to India of tax haven abuse.
The Hindu Business Line reports just how seriously the issue is being taken in the 2011 budget:
Transactions with entities in ‘non-cooperative' jurisdictions that do not effectively exchange information with India may soon attract TDS (tax deduction at source) of at least 30 per cent.
This is one of the several ‘anti-avoidance' measures that the Finance Minister, Mr Pranab Mukherjee, has proposed in Budget 2011-12, to discourage residents from transacting with entities in ‘non-cooperative' jurisdictions.
Through the Budget, Mr Mukherjee has sought to put in place a “toolbox of counter measures,” against those jurisdictions that hesitate or do not want to enter into tax information exchange agreement (TIEA) with India. The Budget empowers the Centre to notify such jurisdictions.
Besides stipulating a stiff TDS rate, the Budget has also proposed that such transactions would be deemed to be an international transaction and attract transfer pricing regulations.
Also, payments made to any financial institution in such jurisdictions would be allowed as deduction for tax purposes only if an assessee furnishes an authorisation to the tax department to allow the Indian tax authorities seek relevant information from the financial institution.
The Finance Bill, 2011 has also proposed that no deduction (for tax purposes) in respect of any other expenditure or allowance (including depreciation) arising from a transaction with a person located in that jurisdiction would be allowed unless the assessee maintains other documents and furnishes information as may be prescribed.
Moreover, if a resident were to receive money from such jurisdiction, then the onus is on the assessee to explain “satisfactorily” the source of such money. Otherwise, the amount would be deemed as income of the assessee.
This is a very welcome range of measures. They look robust. The messaging is clear. Cheats will be tackled.
I warm;y welcome this approach. It should be adopted in the UK and elsewhere. If it was tax haven cheating would reduce in scale, rapidly, if (and it's a big if) sufficient resource was dedicated to policing the activity and banks were made liable for facilitating transactions that may be in breach of the regulations.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Indian auditors are amongst the most competent in the world.
Should Mr Pranab Mukherjee “toolbox of counter measures” be pooled with honest banking and effective regulation then the Indian tax authorities may well teach the world a lesson in stamping out tax haven abuse.
@ Richard
What’s also significant about this is that it puts the lie to two oft repeated claims from the right/libertarians.
1. that nothing significant can be attempted unilaterally because of globalisation.
2. that any country’s attempts to legislate against tax evasion is undone by the race to the bottom (sorry, ‘competitive tax arrangments’)of other states, particular in the developing world.
Well done India!
Where there’s a will, there’s a way!
Er..I think you will find that nearly all of the leading offshore financial centres have signed tax agreements with India and are not regarded as “non-co-operative” by India in the slightest!
PSG – you don’t seem to know much about India. Its one of the most corrupt countries in the world. The UK Bribery Act is going to make it impossible for any UK-connected parties (including British citizens living anywhere else in the world!) from dealing with India.
@Gerald
Actually it’s just Bermuda, the Bahamas and the Isle of Man
See http://www.oecd.org/dataoecd/43/59/43775845.pdf
So utter nonsense from you
And the reality is most are refusing to engage with India
@Gerald
“The UK Bribery Act is going to make it impossible for any UK-connected parties (including British citizens living anywhere else in the world!) from dealing with India.”
Transparency International Index of corruption in 178 of the world’s countries rate India at No 87.
Not that much worse than Italy, Brazil and China and better than Egypt, Algeria and Argentina…
Could this effect UK export business?
And the UK’s recovery?
PSG
Yes the UK Bribery Act could have a massive effect on the UK’s recovery. Bribes are an everyday occurrence in many parts of the world. In some countries they are even tax-deductible expenses. You cannot secure contracts without paying bribes. The UK cannot possibly hope to compete any longer in emerging markets.
There is one big – and often unwarranted – assumption behind any crusade against tax havens: that the measures aiming to circumvent or curb these money flows will be correctly and ethically applied and that the recuperated and thus “properly taxed” monies will be spent in the common interest.
These assumptions seem pretty strong to me – especially in the case of countries like India whose police, judiciary, local and national governments have often been decried as pretty corrupt (Transparency International 2010 ranking: 87 out of 178). There was even an Indian voice recommending that undeclared monies remain in Switzerland (see http://www.deccanherald.com/content/141372/let-black-money-remain-swiss.html).
Also, tax havens can also help ethnic or religious minorities protect their honestly earned assets from the ethnically or religiously targeted expropriations of governments in their country of residence.
Finally, the big challenge in such drives is that they must address all tax havens at once, those that are offshore and those that are onshore as well as tax niches and loopholes that are very specific to each country and often the result of a complex domestic negotiating process (“pork barrell politics” say the Americans). Barring that, money flows will go to other jurisdictions
@Allen Adler
Oh dear – the usual twaddle
a) You don’t believe in democracy then and prefer money to be controlled by criminals?
b) You advocate no action on any crime then until all criminals can be tried together
That’s what you’re saying
And sane people will rightly assess you for saying it
Mr. Murphy, I was raising questions that, to me at least, seem both relevant and meaningful, and was trying to engage in a reflective debate with you.
Given that these issues are mere “usual twaddle” in your eyes, and that, moreover, “sane people will rightly assess me for saying what I did” – things that I did not say but that you inferred – I am afraid engaging you in any kind of discussion is pointless.
Much success to you.
Kind regards,
Allen Adler
Congratulations, though, on your excellent blog site – both informative and well-documented. I will continue to visit and learn.
🙂
Best,
Allen Adler
Oops, just read the “Comments” section of your blog, as well as looked at the other sections.
I now understand your reaction to my questions above much better: you have dedicated a lot of time, attention and energy to these issues, acquired a lot of expertise in these matters and have come to certain conclusions that do not warrant much discussion from your perspective. It is understandable.
Again, all the best and thanks for providing such interesting materials.
Allen Adler