The US justice department has forced a Swiss bank to reveal names of American tax evaders, the Group of Twenty in London has emphasized concerted action against tax havens, while L.K. Advani has beaten his drum to the point that it has become a campaign red herring.
All this time, the Indian government seemed to be doing nothing. It’s encouraging, then, to see that the tax department has gotten cracking.
The chairman of the Central Board of Direct Taxes (CBDT) told The Economic Times this week that notices have been sent to 50 individuals holding accounts in a Liechtenstein bank. In February 2008, Germany had gotten hold of a list of 1,400 evaders hiding money in the same bank. We had asked last year whether India was working with Germany to locate Indian tax evaders. We don’t know when CBDT began pursuing this issue, but we’re glad it is on the case.
This doesn’t close India’s chapter on tax evasion. It’s far too easy for politicians to unleash rhetoric against tax havens. Doing something about it is different.
The kind of collaboration seen on the part of the Organisation for Economic Cooperation and Development (OECD) is a good start. OECD seeks cooperation from tax havens, blacklisting those that are uncooperative. Diplomacy is key: India has engaged in this previously to produce tax treaties with, say, Mauritius.
More importantly, the government, in its enthusiasm, shouldn’t start amending laws just to nab evaders. Tax lawyers have already started discussing changes such as a retroactive law that would allow CBDT to pursue cases beyond current limitations. This may not be advisable: Any retroactive law, which suddenly deems illegal something that wasn’t earlier, is inherently unfair. It may also lead to a host of unintended consequences, giving authorities the power to chase perfectly proper tax assessments.
Instead, CBDT should get more diligent within the existing legal framework, introducing more forensic accounting practices to detect felonies.
The financial crisis has given governments the opportunity to focus on tax evasion. Without getting carried away, India should pursue the matter reasonably.
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