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FIRE AND FLOODS HELP TAX EVADERS

Akhilesh Bhargava

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It has been a well known fact that for many decades, Indians have secretly stashed their black money is overseas tax havens like Switzerland, Liechtenstein, Bahamas, London, British Virgin Islands (BVI) etc. Such illegal parking of funds abroad, in violation of India’s tax and foreign exchange laws, has been a favourite tax evasion practice, of the rich and famous, who have tonnes of such ill gotten gains and can thus engage the smartest of consultants to hide their black money in secret accounts and assets abroad. This entire tax evasion industry is shrouded in stealth and secrecy, because that is how it benefits all involved, whether it be the tax evader, or his advisor, his banker and certainly the country where he chooses to park his illegal booties. Such illicit wealth fosters the prosperity of tax havens, which explains the prosperity of nations like Switzerland etc.

It is only when a disgruntled employee of a bank, as in the case of HSBC Geneva, or where the ethical hackers choose to break into the database of any one of these agencies, as in the case of Paradise Papers and the Panama Paper leaks, that authentic information about such tax evaders and their hidden assets abroad is revealed and helps the tax authorities of countries like India, to investigate such cases and to tax, penalise/prosecute these tax evaders, who are invariably the rich and famous as in the case of the Bachhan family, who were found to have hidden assets routed through Panama.

India often receives information about Indians having undisclosed black money assets/income abroad. But such information is of little use and cannot be enforced in Indian courts, unless it is supported with credible and cogent evidence, to prove such a case against a tax evader. Mere suspicion/unproven information makes no headway in nabbing a tax evader and that needs the support of the government of the respective tax haven to share data/documents with India. For the most obvious reasons, these tax havens, until a decade ago, used to refuse to share any such data, citing excuses such as banking secrecy etc. It is due to the constant aggressive persuasion of India, that now almost a hundred nations share such information with India, not just about past black money transactions, but also about current transactions, on a real time basis.

The sharing of such information with India, related to any past transactions is a tedious process and takes about 9-12 months, before it is handed over to India. The British Virgin Islands, a tax haven in the Carribean, have been a favourite territory for Indians to secretly stash their black money. A number to tax evasion cases related to undisclosed foreign accounts of Indians have pertained to BVI and the Indian tax authorities continuously seek data/documents/evidence from the BVI. It is reported that numerous high profile cases of tax evasion, have been under discussion between India and the BVI, with the former seeking data/documents. Interestingly, the BVI authorities have informed India that it is now unable to share information on tax evasion, since the data has got destroyed in floods in August 2017 and files have been lost. The direct beneficiaries of this ‘natural calamity’ are the tax evaders amongst India’s rich and famous. Such a response from the BVI is difficult to believe and reminds one of mysterious fire last year, that destroyed the Scindia house building at Mumbai, (which head quartered the investigation wing of the Income tax Department), and all the sensitive/incriminating data/documents therein. Earlier it was the authorities that protected the tax evaders, and now curiously calamities do that, whether it be floods or fire.

Business Tit-Bits

What was the Harshad Mehta tax story?

Akhilesh Bhargava

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The original Big Bull of the stock market, Harshad Mehta, was being investigated by numerous authorities for the 1992 stock market scam he perpetrated. The Income Tax Department conducted raids at numerous premises of Harshad Mehta and family and siezed many documents amongs other evidences. However, there was no black money involved as the source of all money recieved was from banks and all transactions were well documented. The IT Dept gave him and his family a hard time by adding frivolous income to his total taxable amount and this case went on for 27 years, even after Harshad had himself passed away. Finally, the ITAT, the final fact finding authority, srapped most of the additions to his income of over 2,000 crore ₹ which the IT Dept had made and further went on to make some observations of their own. Unfortunately, this is also the case with most taxpayers that IT Authorities in spite of having a low success rate, tend to keep appealing the matter without a genuine case, thereby causing much difficulty to small and medium tax payers.

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Business Tit-Bits

Yes Bank Deliberately Misleads

Akhilesh Bhargava

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Yes Bank recently released a report by RBI which stated that it had given the private lender a clean chit and found nil divergences in asset classification and income recognition. However, this was not the whole truth and Yes Bank conveniently omitted the fact that RBI in the same Asset Quality Report had discovered non-reporting of NPAs in 2015-16 to the tune of 4,176 crore ₹ and in 2016-17 of 8,373 crore ₹. The report was also a confidential one and was not to be revealed to the public. Serious accounting malpractices and loans are given contrary to the bank’s lending policies were also found which finally led to the RBI insisting Yes Bank’s founder Rana Kapoor be removed. The RBI has promised regulatory action for this breach of trust and deliberately attempting to mislead the public which made Yes Bank’s shares rise 32% in a single day.

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Business Tit-Bits

Is the Jet rescue plan a hogwash?

Akhilesh Bhargava

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The debt-ridden Jet Airways, which was once India’s largest private sector airline, has declared a massive quarterly loss again and its market share has fallen and it has become a fringe player. It is also dealing with a host of other problems and its promoter Naresh Goyal is not willing to let go of his company in favour of another investor. Its largest lender, SBI has come up with a revival plan that involves converting debt into equity and this will ensure that Naresh Goyal’s stake in the company comes down to 20% and he will lose effective control over it which has to be approved by shareholders at their next meeting. What is important, however, is that Naresh Goyal should not be given to managing the airline like in case of Kingfisher Airlines back in 2011and a new management must emerge to take control. All these factors must be clearly included in the restructuring plan.

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