Checking Tax Evasion

There is increasing recognition of the urgency with which the menace of tax evasion, black money and corruption needs to be tackled. These have become burning issues due to the need to close the fiscal deficit, domestic pressure and increasing pressure in international forum such as G20.

Global Financial Integrity estimates illicit flows out of India of USD 462 Billion, between 1948 and 2008. The Budget FY’13 took a few measures to check tax evasion. In this Budget, the Government has now made it mandatory for disclosure of all assets held abroad.

India has recently signed the Multilateral Convention on Mutual Administrative Assistance on tax measures. This will enable better coordination among countries in matters related to tax information sharing. Also announced in the Budget FY’13,

• 82 Double Taxation Avoidance Agreements (DTAA) and 17 Tax Information Exchange Agreements (TIEA) have been finalized. The FM also stated that information regarding bank accounts and assets held by Indians abroad has started flowing in.
• Dedicated exchange of information cell for speedy exchange of tax information with treaty countries is fully functional in CBDT.

Further, Budget announced the establishment of Directorate of Income Tax Criminal Investigation in CBDT. A white paper on Black Money will also be presented in the current session of Parliament. Measures taken to deter the generation of unaccounted money include:

• Tax to be deducted at source on purchase bullion or jewellery worth over Rs 2 lakh in cash
• Tax to be deducted on transfer of immovable property (other than agricultural land) above a specified threshold
• Increased onus on closely held companies of proof for funds received from shareholders as well as taxing share premium in excess of fair market value
• Taxation of unexplained money, credits, investments, expenditures etc. will now be at the highest rate of 30 per cent irrespective of the slab of income.

The Budget has also proposed the introduction of a General Anti Avoidance Rule (GAAR) to counter aggressive tax avoidance schemes, while ensuring that it is used only in appropriate cases, by enabling a review by a GAAR panel.

Despite the World Bank Stolen Asset Recovery Initiative (tracing-freezing-ceasing-repatriating) and other information sharing initiatives at international forums and G20, a lot remains to be desired. The Financial Secrecy Index of the Tax Justice Network ranks countries according to their performance on tax information and financial secrecy.

Developed countries along with their satellites are the worst performers. Interestingly, most of these are a part of G20. This makes G20 an apt forum to carry negotiations and the dialogue further. Steps taken in India are small yet concrete and the initiative needs to be taken forward in the right earnest.