G-20 gets serious on banking in tax havens

It is really long overdue and welcome news which has emanated from the G-20 meeting being held in London. Tax havens have had a pretty free run for the past few decades and have sheltered funds of dubious characters – whether they are crooked politicians, arms/drugs smugglers, terrorists or crooked businessmen. Along with these deviant characters you also have genuine businesses who plan their taxes in such a way as to minimize the incidence of tax so as to maximize shareholder value. A differentiation between tax evaders and tax avoiders needs to be made, and this has been discussed threadbare over the years. I am sure those who plan their taxes will have no problem with the disclosure requirements which will be laid down following the G-20 meeting. It is the others who need to worry!

Tax haven countries have lax banking laws which enable them to refuse parting with information about their clients in spite of requests from various national Governments. The countries named are Costa Rica, Malaysia, Philippines and Uruguay. The general understanding is that slush funds are stashed in Swiss banks due to Swiss banking laws. Surprisingly Switzerland has not been named as one of the non-cooperative tax havens, even though very recently the US had to arm twist UBS (a Swiss bank) to part with data of 50000 customers for checking with US IRS records. I guess this is a corollary to the collapse of the global economy – all governments are feeling the heat and want to get at illegally stashed income. Such measures are aimed at improving the tax mobilization of a country. A country can tax companies which are bringing in investments from such island havens. These measures will also make the system transparent.

At present a number of countries like Cayman Island, Bermuda Island, Bahamas, Panama, Jersey, Monaco, Nauru, Lichtenstien, Luxembourg, Switzerland, Belgium, Belize, Barbados, British Virgin Isles Costa Rica, Cook Islands, Gibraltar, Grenada, Guernsey, Maldives, Malta, Marshall Islands, Montserrat, Netherland Antilles, Niue, Samoa, San Marino, Seychelles, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines, Tonga, US Virgin Islands and Vanuatu among others are used by companies to channelize investments in different countries. These countries do not levy taxes on incomes earned from investments made in other countries. Many companies and individuals use these countries to invest in other nations.
It has been said that trillions of dollars have been canalized through these tax havens to various countries. If the taxes are collected on the income earned from these investments, it will generate hundreds of billions of dollars for the global economy. I am sure most individuals who are banking with tax havens will be the ex-high profile Fund Managers and Investment Bankers who have been primarily responsible for making the global economic bubble large enough to burst with their complex structures and hare brained investment plans, which mind you, the various Governments (including the US and UK) permitted through lack of oversight. One needs to draw a line between genuine oversight and a runaway free economy – in which unscrupulous businessmen / politicians make humungous amounts of money while the going is good and ask for Government support and tax payer funding when the shit hits the roof. It should be made very clear that businesses should realize that in good times the profits are those of the company and in bad times also they should take the responsibility for the losses – you can’t have the Government bail you out when you make losses.

As far as India is concerned it would be really great if we can get all the illegal money stashed abroad back into the country. When the money and its owners are identified, the list of account holders will make really interesting reading. I am sure we will have names of quite a few politicians exposed along with slimy businessmen. I hope this exercise is done straight away without giving the people time to move the money. The Financial Intelligence Unit should have systems in place to track the flow through any number of transfers, so that the guilty can be brought to book. The money, if we have the balls to get it back and punish the guilty, will go a long way in alleviating poverty in our country. We could actually manage to get every citizen a roof over his head, clothes to wear and three square meals to eat. As the story goes Indians have stashed away at least US$ 1.5 trillion and our forex reserves are just US$ 252 billion – that is just one sixth of our hordes lying abroad illegally.

Let us see which political party promises to bring the money back if elected (the BJP and Communists are already saying they would), and let us see if they deliver on their promises. Jai Hind!