In the 21st century, the rich are growing richer. And they are employing a veritable arsel of devious means to guard their wealth. To avoid paying taxes, they invest their money in a thicket of shadowy entities through transactions so complicated that an army of fincial experts could toil in vain for years to uncover the money trail. Or the rich may shift their wealth offshore and park it in Swiss banks or various tax havens. So much so, that such tax havens are being considered a key engine of growing inequality by a section of economists. Over past few years, a few intrepid whistleblowers have blown the lid off such money flows. The leads have been assiduously followed by jourlists in several countries, with the resulting exposes putting the spotlight on heads of states and powerful politicians, corporate honchos, top entertainers and sportsmen. The Swiss bank revelations in 2013 and Pama Papers leak last year brought to the fore the dimensions of such offshore transactions. In the latest such leak, dubbed the ‘Paradise Papers’, the German daily Süddeutsche Zeitung obtained a treasure trove of over 13 million tax haven records and communications accessed from a Bermuda-based offshore law firm and a Singapore-based business consultancy. The German newspaper in turn shared the data covering nearly 7 decades from 1950 to 2016 with the Intertiol Consortium of Investigative Jourlists (ICIJ). In the first set of revelations, the mes of 714 Indians figure — including Minister of State for Civil Aviation Jayant Sinha, BJP MP Ravindra Kishore, Congress leader Sachin Pilot, the sons of senior Congressmen P. Chidambaram and Vyalar Ravi, megastar Amitabh Bachhan and liquor tycoon Vijay Mallya. While inclusion in the list does not imply crimility, it is sure to provide ammunition to various political parties in trying to score brownie points. It has been pointed out that many firms specialising in law, chartered accountancy, banking and fince, legitimately find various means and loopholes to reduce the tax liability of clients. In turn, the tax authorities seek to close off all such avenues, so it is a continuing cat and mouse game. The question therefore is whether a device to reduce (or avoid) taxes breaks any tax law of the land.
Tax avoidance and Inequality
In the coming days, it will be upon the government to go through the revelations threadbare and find out whether there has been any law-breaking by the Indian tiols med in the Paradise Papers. This will likely figure a multi-agency probe including the CBI, Enforcement Directorate and Fincial Intelligence Unit. If some Indian firms are found to have set up offshore entities, that in turn would raise the question whether the Reserve Bank’s permission was duly taken for such fund remittance. It has to be remembered that setting up such offshore firm/account and transferring money back to the country is not illegal unless kept a secret from the authorities concerned. In case tax evasion is found and linked to black money, the Special Investigation Team (SIT) on black money (which reports to the Supreme Court) will come into the picture if the Central government decides to go after it. The opposition Congress party has already thrown down such a challenge to the NDA government, and it will be interesting to see how the government responds. The same situation will arise in countries like the US and UK which are among the 180 countries med in the leaks. It has been revealed that the Duchy of Lancaster, which handles the wealth of Britain’s Queen Elizabeth II (and provides her with a handsome income), invested a sizeable part of the funds in offshore tax havens as well as some businesses with questioble backgrounds. Then there is US Commerce Secretary Wilbur Ross who has been found to have business ties to a shipping firm linked to Russian President Vladimir Putin’s cronies. It also transpires that Russian State institutions with known links to President Putin invested millions of dollars in Twitter and Facebook through a business associate of Jared Kushner, son-in-law and adviser of US President Dold Trump. This could add fuel to ongoing investigations by US federal agencies whether Russia influenced last year’s presidential elections which sent candidate Trump to the White House, and in particular the role of social media which overtly favoured him. A top fundraiser and senior advisor of popular Cadian Prime Minister Justin Trudeau too has been med for moving huge funds to offshore tax havens. Since Prime Minister rendra Modi, President Dold Trump and UK Prime Minister Theresa May are among several heads of states who have taken a hardline against tax avoidance practices, it remains to be seen whether there is a coordited global response.