Paradise Papers make good headlines, but what did we do with Panama, HSBC lists?

Paradise Papers, a list compiled by International Consortium of Investigative Journalists (ICIJ) to probe the rich having investments in offshore tax havens, happens at a time when India has intensified its scrutiny on tax cheats. After a year of demonetisation (which was launched by Narendra Modi in November 2016 with the principal objective to curb black money), the government has begun its crackdown on shell companies. According to government data, the Modi-government has struck off around 2.24 lakh companies for being inactive for a period of two years or more and has put restrictions on the operation of their bank accounts and sale of movable and immovable properties until they are restored.  The government, citing a preliminary investigation of 58,000 bank accounts of 35,000 companies, has also said over Rs 17,000 crore was deposited and withdrawn post-demonetisation in these accounts. [caption id=“attachment_4195381” align=“alignleft” width=“380”]  Representational image. Reuters[/caption] This is certainly a progress made in the fight against black money but only a drop in the ocean of unaccounted wealth estimated to be lying under the carpet in this country. In his new book, Blackmoney and Tax Havens, academic-turned-author R Vaidyanathan estimates the amount of domestic black money to be around Rs 15 lakh crore, a good amount of which could be in the form of assets such as real estate and financial investments. This figure alone tells us that there is a long fight ahead and what has already been achieved through measures such as note ban is too small a gain. Merely banning shell companies would offer only a temporary shock to tax frauds. New ones will come up and continue the same process. For a government promoting entrepreneurship, it is impossible to detect those firms being set up with ill-intentions. Often, these firms are set up for specific purposes, often for a short-period, to manipulate accounts and escape the taxman. The money transferred through these vehicles would typically travel fast into safer havens. Hence, the government will have to look into the past of these promoters for a longer period and lay hands on all connected transactions that have taken place since their inception. This wouldn’t be easy since most of these firms have political-corporate nexus. Tracking deposit movements post-demonetisation will hardly yield big results because much of the black money is stored in real assets not cash—something most experts have pointed out time and again. The Rs 17,000 crore tracked is only the tip of a gigantic iceberg. Well in advance of the currency crackdown, most crooks would have got a sense that the government is planning big steps to track their unaccounted wealth and would have converted it to real estate assets. But for India, the bigger target is foreign black money. Domestic black money is only a fraction compared with what is at stake in foreign tax havens. According to Vaidyanathan, the amount of money Indians have stashed in tax havens could be around Rs 65 lakh crore.

Needless to say, India is one of the biggest victims among comparable countries. Paradise Papers mentions some high profile Indians including Union Civil Aviation Minister Jayant Sinha (according to the Indian Express report), fugitive businessman Vijay Mallya, cine star Amitabh Bachchan.  The point is mere mention of names in Paradise Papers does not make the person guilty till the time there is evidence of wrongdoing. But it helps regulators, investigative agencies and governments of different countries fighting the evil of tax evasion to break into the shadows of tax havens across the world. For India’s Narendra Modi government too, Paradise Papers offer an opportunity. There is more light entering into these tax holes that will enable the government strengthen its anti-black money fight and get this chunk of money accounted for and taxed. But, here one must look at the progress made by the Indian government after similar leaks in the past such as Panama Papers and HSBC list of tax evaders. The bitter fact is that there isn’t any real progress so far on them. The government has so far said the probe is on but the more it delays action on the guilty, the tax cheat is getting time to move his ill-gotten wealth into safer havens. A Special Investigation Team (SIT) set by India couldn’t make much progress after it found that less than half of the HSBC bank list of over 600 accounts did not have any money while more than hundred names were a repeat, hampering the possibility of any action against them . Once the details of accounts in overseas tax havens are available, the government can take up the cases with those authorities with evidence to punish the wrongdoer. But, the rich will always think of new ways to stash away their wealth and new tax havens could emerge. Once the names are exposed, it will take only a few hours for the holder of the illegal money to transfer it to safer locations. Unless India acts fast, there will be very little to recover from foreign tax havens even with all the names in hand. Beyond the immediate crackdown, the long-term solution to curb money flow into tax havens is, of course, to offer incentives in the local soil by way of lowering taxes and thus increasing compliance. Follow Live updates here.