New Delhi: The options for concealing illegal wealth shrank on Tuesday after India and Switzerland signed a declaration ending the era of Swiss bank secrecy and allowing automatic exchange of financial information between the two countries prospectively.
This complements the domestic crackdown on black money with the government announcing demonetization of currencies of denominations Rs1,000 and Rs500 on 8 November.
The notification this month of the Benami Transactions (Prohibition) Act, covering both movable and immovable assets, gives further ammunition to the government to crack down on tax evaders who use their unaccounted money to buy property under fictitious names.
Analysts say that even if the measures do not extinguish the problem of black money, they will increase the cost and risks of garnering illegal wealth.
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Automatic exchange of information, along with the stringent Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, is expected to act as an effective deterrent for tax evaders who have stashed their money in foreign countries.
According to a joint declaration by the two countries, India will automatically receive all financial information about its residents, including bank accounts and balances, dividends and interest income and sales proceeds used to calculate capital gains tax, from September 2019.
The information will be for assessment years starting 2018.
The declaration was signed by Sushil Chandra, chairman, Central Board of Direct Taxes, and Gilles Roduit, deputy chief of mission of the Swiss Embassy in India, and follows hectic negotiations spanning several years between the two countries.
Automatic exchange of information (AEOI) seeks to bring the era of banking secrecy to an end; eventually all financial information will be shared between governments. Switzerland is a signatory to the AEOI agreement under the aegis of the Organisation for Economic Co-operation and Development.
However, for the agreement to come into effect, Switzerland had to either sign bilateral agreements with countries or be a signatory to the multilateral agreement. These agreements then have to be ratified by the Swiss Parliament. So far, Switzerland had signed such bilateral agreements mainly with European Union member countries.
In a statement, the Swiss embassy said, “India meets in particular the high demands in terms of adherence to the principle of speciality and the safeguarding of confidentiality for the data delivered, which are prerequisites for the introduction of the AEOI.”
India and Switzerland achieved headway in talks following a visit by Prime Minister Narendra Modi to Switzerland earlier this year where he pushed for automatic exchange of information in a meeting with Swiss President Johann Schneider-Ammann.
With the pact with the Swiss government, tax evaders will have no where to go after the recent moves of the government, including demonetization and notification of the Benami act, said Rakesh Nangia, managing partner, Nangia & Co. “The information coming from Switzerland will be legally sourced and hence there will be no bar on usage of such information to catch tax evaders.”
Elizabeth Roche contributed to this story.