2 min read.Updated: 04 Oct 2021, 10:50 PM ISTLivemint
Intricate patterns of offshore wealth holdings revealed by leaked papers should push India to check tax evasion and illegality, but also focus on minimizing incentives for capital to flee
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A few years after the release of the Panama Papers, a new exposé has burst into the news, revealing complex webs of offshore dealings by wealthy individuals around the world. The Pandora Papers sourced by the International Consortium of Investigative Journalists, of which the Indian Express is a part, feature people from various walks of life, ranging from sports and entertainment to public affairs and business, and even some who are already under the state scanner for hidden assets. The outcome of an investigation that dug into as many as 12 million documents from 14 companies in offshore tax havens with ownership details of 29,000 offshore firms and trusts, the latest list has royalty on it, too, apart from a few heads of state and more than 130 billionaires. What’s common to them is that they all have overseas assets owned either through trusts or companies. Over 300 Indians are reported to have been named, and while it is not clear if any Indian law was violated, or anyone’s privacy in the process, the baring of foreign finances this way has high relevance in India, given our problems of tax evasion and sneaky capital. Despite an open capital account, we cap outward transfers of money by individuals, but various dodges have long been used to sneak wealth abroad for masked investments or secret vaults. Ill-gotten gains are often stashed away like this.
The hiding of wealth from state authorities goes back a long way, with financial planners often ahead of sleuths on their trail, but such bulk revelations are a bonanza. They offer leads that should be chased down swiftly and put to legal scrutiny. Till then, except in glaring cases of illegality, all asset-owners must be held innocent unless proven otherwise. Our remittance regime lets residents move up to $250,000 overseas each financial year, while non-residents have a multifold limit, and a globalized world has meant foreign business deals and earnings. People who own stuff beyond our borders may or may not fall afoul of the law. Yet, many of the offshore vehicles in play arouse suspicion with webby holdings that suggest attempted obfuscation of beneficial ownership. Where such motives are betrayed, especially, no time should be lost in investigating the case.
From another perspective, the larger issue that Pandora has opened is that of potential capital flight. High levels of jurisdiction-shopping usually correlate with large sums of money flying out. Our barriers are porous, thanks to globalization, while a heavier tax burden recently placed on India’s rich and a widening of inequalities have caused some anxiety over taxes turning unduly harsh. Calls for sharper redistributive action have gone up, our need for public spending has risen, and wealthy Indians who expect some sort of wealth or estate tax to make a comeback would be tempted by offshore options. India cannot go back to stiffer capital controls without severe repercussions. Such curbs are usually blunt instruments that cause much collateral damage in an open world of trade and other cross-border transactions. They would also amount to a roll-back of our economic reforms. What we can and must do, however, is ensure that our tax policy and other settings minimize incentives for people to take big chunks of money out of the country. That India must retain its charm as a fast-emerging and high-return market is one part of that. An assurance that unfairly heavy demands will not be made of the wealthy is another.