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Black Money – Blame it on the Tax Treaties

(Brinda Karat is a Politburo member of the CPI(M) and a former Member of the Rajya Sabha.)

There is no place to hide for the BJP on the black money issue after the drubbing it got in the Supreme Court. Even its vocal supporter Ramdev was at a loss for words in TV interviews to explain the Modi Government’s U-turn on the issue, after it used the same arguments as the Manmohan Singh Government against revealing the names on the list which it had received in 2010 and additionally in 2011.

Why is the Government providing a protective umbrella to these account holders, asked the Supreme Court.

The flawed response of the Modi Government, as was the UPA Government’s before it, is premised on the claim that it is international treaties, including Double Taxation Avoidance Agreements (DTAA) of which India is a signatory, that mandate confidentiality of names received.

Mr Arun Jaitley was well aware of these clauses when his party protested against the UPA Government’s similar position – at the time, he was a leading member of the opposition.

Political convenience and not political principles is the driver of the politics of both these parties, to the detriment of Indian democracy.

But there are deeper and more substantial issues involved than the political hypocrisy of BJP or Congress leaders on the issue of black money.

Globally, and in India, it is the rich and powerful who are dodging taxes, cheating on the law, accumulating money in illegal ways. The Global Financial Integrity (GFI), a Washington-based think tank, has assessed that the illicit financial flows out of India were driven by High Net-Worth Individuals and private companies. As per the GFI study, the Indian private sector increasingly shifted funds towards deposits in off-shore financial centres or tax havens. The share of these deposits rose from 36.4 per cent in 1995 to as much as 54.2 per cent in 2009.

International agreements with protective clauses to shield wrong-doers only facilitate tax evasion and also the generation of black money. It is reported that Germany, which had earlier provided a list, has written to the Government demanding to know whether the Government had handed over the names to any other institution in violation of the agreement signed between the two countries. Corporate wrongdoers are so powerful in today’s world that Governments are more interested in protecting them in the name of right to privacy than in preventing financial criminality that robs countries of their legal dues.

Take the example of the DTAA between Mauritius and India. This has turned out to be a major conduit for tax evasion and money-laundering. Out of the total FDI inflows into India (132 billion dollars) between April 2000 and March 2011, as much as 42 per cent came from Mauritius alone – so a small economy accounted for more than eight times the FDI from the US!

The UPA Government’s own white paper on black money also admitted that this was believed to be a route for money laundering and India’s black money was round-tripping through the Mauritius route.

Yet another route is that of Participatory Notes (PN) which permits FIIs to invest in financial markets with funds from undisclosed sources. Don’t forget that the recent big scams in India like the 2G or the IPL also involved channeling of funds through shell companies in Mauritius.

So the question is, why are these agreements not being reconsidered? Why are PNs not banned?

Moreover, these treaties do not even have a provision for repatriation of undisclosed assets. So, when Modi declares that he will bring the black money back, it is nothing but rhetoric as long as these treaties in their present form remain.

Thirdly, was Parliament ever consulted before India became a signatory to them? Democratic opinion in India, reflected in the consistent and sustained interventions by Left MPs in Parliament, has been demanding that international treaties which have a bearing on the lives of our citizens should not be signed without the approval of Parliament. But this has been ignored by both regimes.

Yet another aspect is the link between black money holders and political parties who are the direct beneficiaries of black money to fund their election programmes. The Goa mining company, whose name became public after the Supreme Court intervention, has, according to the Association for Democratic Reforms, funded the BJP nine times since 2004. It has given the BJP twice as much funding as the Congress. The friendly relations and quid pro quo between some parties and politicians with companies involved in black money transactions is an open secret. There has been little or no scrutiny on political links.

The extent of black money being estimated at around 30 per cent of GDP is part of the massive increase in corruption in India. The Left has been arguing that this is linked not only to the criminality of those involved, but is rooted in a particular set of economic policies. These policies have, as their core, the removal of all regulations as far as the private sector is concerned and the handover of national and natural resources to private companies. The massive corruption unearthed in the coal block allocations is linked equally to the denationalisation of India’s coal resources.

The debate on and action to prevent and eliminate black money should take into account the different aspects of the generation of black money.

India needs multi-pronged action including a relook at the treaties which have ended up helping the dishonest and a scrutiny of links between black money and a section of political parties as also the policies which enable tax evasion and the creation of black money.

It’s time to stop the rhetoric and deliver on the promise.

http://www.ndtv.com/article/opinion/blame-it-on-the-tax-treaties-614879

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