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Govt to stem dealings with erring tax havens

Govt to stem dealings with erring tax havens
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First Published: Mon, Feb 28 2011. 11 21 PM IST
Updated: Mon, Feb 28 2011. 11 21 PM IST
New Delhi: The Union government, roiled by corruption cases against its top members, has decided to initiate steps to discourage transactions with non-cooperating tax havens, but experts say the measures do not tackle the problem of unaccounted, or black money, being parked abroad.
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“In order to strengthen our system of collection of information from foreign tax jurisdictions, I propose to provide a toolbox of counter-measures to discourage transactions with entities located in non-cooperative jurisdictions as may be notified by the government,” finance minister Pranab Mukherjee said in his budget presentation on Monday. Mukherjee, without providing a timeframe for the notifications, said India has concluded discussions for 11 tax information exchange agreements and 13 new double-taxation avoidance agreements (DTAAs), and revised the provisions of 10 existing DTAAs.
He said the government has adopted a five-point strategy to deal with black money. These include joining global efforts against the menace, setting up institutions for dealing with illicit funds, creating the legislative framework and developing systems for their implementation.
“The ministry of finance has commissioned a study on unaccounted income and wealth held within and outside our country. It would suggest methods to tax and repatriate this illicit money,” Mukherjee said.
The budget does not address corruption effectively, said Yamini Mishra, executive director, Centre for Budget and Governance Accountability.
“The budget flagged the issue of black money but failed to give any concrete proposal,” Mishra said.
The finance minister proposed amendments to the central excise and customs laws to penalise tax evaders.
To encourage voluntary compliance, penal provisions for service tax are being rationalized.
“A key component of this strategy would be to treat less harshly those who have maintained truthful records but have fallen short of discharging their tax liability,” said Mukherjee.
According to US-based think tank Global Financial Integrity, over the 60 years ended 2008, some $462 billion was illegally siphoned out of India primarily to evade tax.
The cumulative illegal outflow was a little over one-third of the size of the economy in 2008 and twice the size of the country’s external debt that year.
Illegal outflows make up 72% of India’s estimated underground economy.
The finance minister announced a comprehensive national policy in the near future to deal with the trafficking of narcotics, which generates large amounts of black money.
The government has “commissioned a study on unaccounted income and wealth held within and outside our country. It would suggest methods to tax and repatriate this illicit money,” he said.
Political analyst G.V.L. Narasimha Rao said the budget had failed to address corruption and black money. “The announcement made in the budget is more or less announced already by the government. It shows (a) lack of interest and intent by giving empty talks in (the) budget.”
To bridge the governance deficit, Mukherjee announced a slew of measures. The budget proposes a three fold increase in allocation to Rs1,000 crore to the department of justice to create infrastructure and E-courts.
To prevent large-scale diversions of subsidized fuel, the budget has suggested introducing direct cash transfers of subsidies for kerosene, liquefied petroleum gas and fertilizers. The finance minister said a task force led by Nandan Nilekani, chairman of the Unique Identification Authority of India (UIDAI), will suggest ways to implement the project by next March.
“The process has begun in a serious and determined manner. Now we should give them (government) reasonable time to translate their intent into action,” said B.G. Verghese, a political analyst and visiting professor at the Centre for Policy Research.
Mukherjee said the government is awaiting the recommendations of two panels on bringing accountability in the Central procurement policy and allocation, pricing and use of natural resources.
“A group of ministers has been constituted to consider measures for tackling corruption. The group has been tasked with addressing issues relating to state funding of elections, speedier processing of corruption cases of public servants, transparency in public procurement and contracts, discretionary powers of Central ministers and competitive system for exploiting natural resources,” the minister said.
For better governance, the government has set up a performance monitoring and evaluation system to assess the effectiveness of departments in their mandated functions.
Mukherjee said the government is also setting up a Central Electronic Registry by the end of March to prevent fraud involving multiple lending from different banks on the same immovable property.
He informed that the foreign tax division of the Central Board of Direct Taxes has been strengthened with a dedicated cell for exchanging information. The strength of the Enforcement Directorate, a central agency tasked with investigating foreign exchange violations, has been increased threefold.
Appu.S@livemint.com
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First Published: Mon, Feb 28 2011. 11 21 PM IST