The action has begun. With an “element of intensity”, in Finance Minister Arun Jaitley's words. In fact, the Narendra Modi government's first decision—on its first day—was to set up a high-profile special investigation team to unearth black money. Since its inception, the SIT, headed by former Supreme Court judge M.B. Shah, has met twice in North Block. The preliminary review meetings revealed that the journey to recover the money would be long and challenging.
The first breakthrough, however, has been made: the Swiss authorities have invited an Indian delegation to Berne to discuss “further cooperation in tax matters”.
India's hunt for black money dates back to 1959, when Supreme Court judge K.N. Wanchoo was appointed as chairman of a committee to “examine and suggest legal and administrative measures for countering avoidance of direct taxes”. The panel, in its 1971 report, estimated that the country had black money worth Rs7,000 crore.
Currently, reports say, the figure could be anywhere between $500 billion and $2 trillion. Bringing this money back, assuming that most of it is in foreign banks, would mean an end to the widening gap between the government's earnings and expenditure, greater allotment of capital to development and more subsidies for the poor.
But the task is not as easy as it sounds. Standing in the way of the SIT are India's bilateral ties. As of June 2014, India has treaties, both Double Tax Avoidance Agreement and Tax Information Exchange Act, with 130 countries.
“The first [task] is location of the black money. Obviously, this black money is supposed to have been generated in India or partly abroad, a part of which would be in connection with some activities in India,” former Supreme Court judge Arijit Pasayat, vice chairman of the SIT, told THE WEEK. There are two kinds of overseas black money. One generated outside India but has an Indian link and is located outside the country. And the other generated in India but is located overseas. “The second stage [of moving the money abroad] is crucial, says Pasayat. “If the second link is found, it becomes easier as far as the location is concerned. Even without finding the second link, if there is information about the location of the money, we will be able to act on it.”
And that is just the first hurdle. Getting credible information from foreign countries is the biggest challenge for the government. According to Pasayat, laws have to change to enable the dissemination of information on individuals and their overseas bank accounts.
“The SIT will ensure that there is sharing of information among all agencies,” says a government official who has worked in the Enforcement Directorate and negotiated agreements for the Indian government while working in the Financial Intelligence Unit. “But the government must make specific requests while asking for information from foreign countries.”
Ranjit Sinha, director of the CBI, says that the agenda for the SIT would have to be set by the judiciary. “The initiative has to be taken by judges,” he says. “The CBI has been investigating bank offences and economic cases. We know that money has gone out, but we have not been able to get it back. Some changes in the laws and rules may be required,” Sinha said.
Senior lawyer Ram Jethmalani told the media recently that some people in the government were playing spoilers, and that he would take up the issue with the prime minister. “There are certain people in the government who are scuttling my fight to bring back black money from abroad,” he said. “I do not want to say anything further or take names. But very soon I will write about it.”
India is in talks for Double Taxation Avoidance Agreements with Hong Kong, Iran, Nigeria, Azerbaijan, Chile and Venezuela. India will also enter Tax Information Exchange Agreements with several other nations including Costa Rica, Panama, Maldives, Saint Kitts and Nevis, Seychelles, Barbados, the Cook Islands, Jamaica, Peru and Saint Lucia, which have emerged as new tax havens. Other new tax havens include Australia, Hong Kong and Kuala Lumpur. “There are no fixed tax havens,” says Pasayat.
“Wherever people see the scope for stashing money becomes a tax haven.” While the initial hot spots were Switzerland, Liechtenstein, Andorra, the Cayman Islands, Gibraltar and the Isle of Man, the current favourites of Indians are Tunisia, Mauritius, Hong Kong, Singapore, London, Samoa, the Marshall Islands and Vanuatu.
While India can put little pressure on smaller nations, sources say, trade ties could be used to make the bigger nations comply. “It [complying with Indian demands] will depend on the attitude. Some countries would like to go by their own banking laws and you cannot force them to share information,” says Pasayat.
“Supposing they want some information from us, we may be willing to give it or we may say the same thing that our banking laws [do not permit].... Ultimately, both sides have to think that it is mutually beneficial to share the information.”
A MAJOR BOOST for countries battling the black money menace is a new “global standard” proposed by the Organisation for Economic Cooperation and Development. The framework, which will be presented at the G20 meet in September, calls for “systematic and periodic transmission of bulk taxpayer information by the source country of income to the country of residence of the taxpayer concerning various categories of income or asset information”.
So far, India has received the names of 26 Indian account holders from the LGT Bank in Liechtenstein, of which eight have legitimate accounts and the rest are being probed. The government is now in talks with Switzerland for similar details. In June, reports said, the Swiss authorities expressed willingness to share details on suspected tax evaders by relaxing its Tax Administrative Assistance Act. Jaitley, however, issued a statement that he had not received official communication from the Swiss, and was asking them to expedite the process.
In 2011, the US coerced the Swiss authorities to toe the line and inked a deal which would allow Swiss and other European banks to share information. “We have to do what the US did with the Swiss authorities,” says a senior official. “We have to pressure them into agreeing. Beg, borrow, steal... there is no other way to get information.”
Once the information of bank accounts is given to the SIT, the 11 agencies that are a part of it (see box) would be asked to submit their findings on each individual.
“We will then prepare a dossier and send a questionnaire to the suspected tax evader,” says a member of the SIT. The individual can then make voluntary disclosure of untaxed wealth and offer to pay tax or go in for protracted litigation. The government would also have to decide on a possible amnesty scheme, which would allow people to avoid criminal proceedings if they are willing to pay tax on the black money.
“The question of amnesty scheme is for the government to decide. There are other ways [of encouraging people to file their taxes] such as filing revised returns or going to the settlement commission,” says Pasayat. “Before you are actually caught, one can go to the settlement commission and nobody can question it. If it is a permissible way, one should go for it.”
There, however, are doubts over the amount of black money that is abroad, with experts urging the government to look inward, rather than scouring global shores. “Enormous proportions of black money abroad are fiction. I do not know why the government is obsessed with it. They should hunt for the huge amounts of black money right here in India, most of which has been invested in real estate, stock markets and jewellery,” says Ajay Agnihotri, who served as assistant director-general of the Economic Intelligence Bureau in 1983-'92 and 1997-'01.
“According to my estimate, as of last year, there was Rs29 lakh crore black money in India. Small traders and government officials generate most of it. This needs to be scrutinised.”
Jaitley, too, recently stressed on the issue: “The government is making full efforts to bring back the black money stashed abroad, but the officers of the [income tax] department have to make equally serious efforts to unearth black money within the country.”
Men on the mission
M.B. SHAH (chairman of the SIT)Former Supreme Court judge Headed a commission on illegal iron ore mining in Odisha. As head of the special investigation team on black money, he can help overcome legal issues.
ARIJIT PASAYAT (vice chairman)
Former Supreme Court judge Made news for the Best Bakery case judgment, in which he slammed the Gujarat government under Narendra Modi and the state High Court for acquitting the 21 accused. Ordered a retrial outside the state.
SHAKTIKANTA DAS Revenue secretary Senior-most representative from the finance ministry. He will closely monitor the probe and can provide information from the government.
ASIF IBRAHIM Director, Intelligence Bureau Can source information on money being pumped into stock markets. The IB has an internal task force on financial assets.
AKHILESH RANJAN
Joint secretary, CBDT Will examine double taxation avoidance agreements and deal with foreign tax departments.
RAJAN KATOCH Director, Enforcement Directorate Will monitor instances of money laundering under Foreign Exchange Management Act and Prevention of Money Laundering Act.
RANJIT SINHA Director, CBI Will probe corruption cases and economic offences. It can liaison with Interpol and monitor money moved out of India.
R.K. TEWARI, Chairman, Central Board of Direct Taxes, The CBDT will deal with tax departments of other countries and get bank account information.
RAJIV MEHTADirector-general, Narcotics Control Bureau Can probe drug money-black money link.
H.R. KHAN Deputy governor, Reserve Bank of India Can provide information on overseas direct investments made by Indians.
NAJIB SHAH Director-general, Directorate of Revenue Intelligence Can coordinate with the Customs Co-operation Council and scan possible smuggling, customs duty evasion and commercial fraud links to black money.
P.K. TIWARIDirector-general, Financial Intelligence Unit Can get information as CBDT and FIU negotiate with the financial action task forces of foreign countries for information on suspect financial transactions.
ALOK JOSHI Director, Research and Analysis Wing Can get information on individuals and black money from across the globe.