#dnaEdit: Legal labyrinth

The G20, world-weary political and economic observers would say, has outlived its use and that it has become a talking shop like the G8 and then G7. The first time this group met was in the wake of the global financial meltdown and there was panic among the developed and emerging economies. It was during this crisis that the US found out that many of the players in the financial markets and even multinational corporations are seeking refuge in tax havens across the world. The US had pressured banks in Switzerland, which had developed the dubious reputation of guarding the secrets of the account holders, to disclose information about its citizens holding accounts. This prompted politicians like BJP’s senior leader LK Advani and other civil society advocates to raise the pitch on the issue. Prime Minister Narendra Modi during the Lok Sabha election campaigns earlier this year had harped on it as well, and promised to retrieve money stashed illegally in foreign banks. But it turned out to be a legal labyrinth because bilateral treaties were needed to get the information, and there were enough rigmaroles in these treaties which made it difficult for disclosures. 

Modi has used the G20 summit to drive home the point on black money, and linked it to “terrorism, drug trafficking and arms smuggling”. It is interesting that the emphasis in the summit leaders’ communiqué was on multinational companies (MNCs) avoiding tax payments by shifting their bases. India at the moment is not concerned with the MNCs’ tax evasions as it is with that of its own citizens’. The difference in emphasis between Modi and the G20 is understandable. As a matter of fact, India is fighting shy of going after the MNCs who evade taxes. 

Pranab Mukherjee as finance minister in 2012 imposed what has been termed a “retrospective tax” on Vodafone for not paying taxes due after it acquired the Indian operations of Hutchison Telecommunications by transacting the transfer of shares in a tax haven. Pro-reform politicians and uncritical economic liberals felt that it would scare foreign investors from India. 

Modi had endorsed “the automatic exchange of tax information” on a reciprocal basis and the Common Reporting Card. This is indeed the ideal extension of the economic globalisation process and the creation of international taxation rules. But this may not be too practicable at the ground level because governments may not want to share the whole of the tax information of their respective countries. There will be enough haggling about what will be shared and what will not be. By the time the idea becomes an acceptable international administrative measure, much time would elapse. But this would give enough breathing time to the Modi government, which is caught up in the cross hairs of bilateral treaties, to score political brownie points in the matter.

It is a moot point as to how much national governments will want to erode their zealously guarded sovereignty to create acceptable international protocols with regard to taxation. It was former Intelligence Bureau chief and former national security adviser MK Narayanan who had initially raised the issue of terror finance. But western governments seem to be handling the issue in a different way by trying to choke the West Asian oil markets and shifting to natural and shale gas from the US and elsewhere. This leaves India to deal with the black money issue on its own. It is more than a hunch now that black money is flowing back into the country in the form of foreign investment inflows. There is need for cool thinking in the matter.