Govt’s will to bring back black money is on test

India’s stand will show many nations in Asia and Africa the way to regain ill-gotten wealth stashed outside their countries

“We have no information on any accounts held by Indian citizens in banks in Switzerland, Liechtenstein, Dubai or any other country. We have no information on the names of persons making deposits or the total amount deposited in any other country”

This is the reply given by the Reserve Bank of India to the RTI application in 2010 filed by late K V M Pai, who had retired in 2001 as income-tax chief commissioner, Mumbai. The RBI reply was part of the application for intervention filed by Pai in the petition filed by jurist Ram Jethmalani in Supreme Court on the issue of black money and offshore Indian accounts.A reply by the CBDT to a similar RTI application by Pai, was also in similar tone. “Efforts have been made from time to time to seek details of Indian account holders from Swiss government under the DTAA between India and the Swiss Confederation. However, the Swiss federal tax administration has expressed its inability to exchange the information regarding bank deposits of Indian residents….” The questions and replies happened in 2010. Within the five years that followed, the situation on ground has changed positively, to some extent dramatically. Many had thought of Pai’s document on black money which he submitted to the various departments of the government, including the PMO, was a wasteful dream that had no relevance to the realities of the time. He had sent this document to the government as early as 2009.

Media did not take this document seriously and therefore did not bother to understand, except a mainline business paper.

After five years from then, the measures for bringing back the wealth stashed away is now viewed as an exercise within the realm of possibility. Several significant developments took place within these five years. Importantly, the government is in possession of several lists containing the names of Indians having unreported accounts in offshore banks, handed over to it by other governments.

The income-tax department has launched prosecution proceedings against many who have been found with unreported deposits abroad. It has also served notices to several such entities on similar charges. India has amended its tax treaty with Switzerland and signed agreements with several governments for exchange of information.

Black money has already become an issue in two consecutive elections held in India. The present government has been consistently reminded by opposition parties of the promise given in the election manifesto regarding offshore wealth.

The government can no longer feign ignorance of Indian wealth stashed aboard. Instead, it has promised to bring in a scheme that will contain a sort of amnesty to those who volunteer to disclose their foreign income and wealth but also punishment to those do not fall in line.

Pai was the first to raise the issue of introducing new laws that would enable the country to bring back the money stashed away abroad. The recently-introduced additional column in the income-tax return form for details of foreign accounts was first suggested by him. In his application to Supreme Court, Pai had clearly pointed out the changes made in the US law by way of a FBAR (foreign bank and financial account) form and the advantage of introducing a similar one in India too.

We are reaching a critical stage in our pursuit for the wealth that has left our borders, though most tax and financial experts betray severe cynicsm in any such discussion on black money and efforts to bring them back to the country from offshore destinations. The optimists, though small in number, believe with the success of the scheme the government is expected to bring in hinges on the political will, sincerity and commitment to the cause.

Most importantly, India will be showing the way for many other countries in Asia and Africa for regaining their wealth taken out of the country consistently and systematically by those unscrupulous elements operating within these countries.

The over 70 tax havens scattered all over the world are continuously fed by the money siphoned off from the backward section of the world economy, mostly Africa and Asia, studies conducted by the international experts suggest. Researchers on tax havens throw up a figure of $ 21 trillion to $ 38 trillion as the global wealth concealed in the offshore banks and affirm that a major chunk of this wealth originate from countries in Asia and Africa.

And a closer look at these figures point to the startling truth that some African countries dubbed as debtors to the world are by and large creditors, provided the wealth taken out from these countries into these tax havens are accounted for. A cumulative $ 944 billion fled the borders of 33 African nations during 1970-2008 while their total external debt was estimated at $177 billion. This figure was part of the work ‘Africa’s Audious debts: How Foreign Loans and Capital Flight Bled a Continent’ authored by Leonce Endikumana, research director of African Development Bank and James Joyce, professor of economics at University of Massachusettes.

The figures show that these African countries are a net creditor to the world which is in total contrast to the prevailing world view about Africa’s economies.

The flight of capital from these countries to the tax havens of the world cannot be gauged merely by the loss of tax revenue. Flight of capital in reality, were flight of their own future as what was taken out of it were resources that could have been mobilised for building the region’s infrastructure.

In 1991, Schweizer Illustierte, Swiss magazine with over two lakh print run had published the names of 14 heads of state including Suharto of Indonesia (25.5 billion), Haile Selassie of Ethiopia (22.5 billion), Mobutu of Zaire (6 billion), Shah Pehlvi of Iran (5.7 billion), Saddam Hussein of Iraq (800 million), and Nicolas Ceausescu of Romania (500 million). The magazine’s content was widely discussed in Indian media in 2009 because the list included a political head of India too. The contents of the magazine’s story has not yet been contested.

However, the point here is this: political heads, their cronies, businessmen and bureaucrats world over have been parking their ill-gotten wealth into the offshore banks and a large portion of this wealth have been originating from countries in Asia and Africa. Because secrecy is the foundation on which the economics and politics of these tax havens are built, there is no easy way to learn with precision the route of the flow, quantity and personnel involved.

However, of late, some global financial experts have been focusing on the wealth taken out from these backward countries which continue to remain at an unenviable stage of economic development. Tax Justice Network, an international voluntary agency that stand for a just world tax regime, point out that the rich and powerful in these countries are powerful enough to influence their government to create a tax structure that favour them.

The upper crust also use a subtle threat that they have the powers to move their wealth to any of the offshore destinations in the world, in case any government ask inconvenient questions.

These are the additional reasons why the government of India should fulfill the promise it made in the election manifesto — to bring back the wealth taken out of the country. If India can show the way, other countries would follow. For, with the flight of capital, many countries’ future too fly out, unfortunately.