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Panama Papers: Why probe by Indian agencies may yield nothing

A look at how we have dealt with old cases of black money and HSBC list shows precious little will be revealed through the Panama Papers probe

Shrimi Choudhary  |  Mumbai 


Black money is back in focus with the expose by the International Consortium of Investigative Journalists that shows hundreds of Indians were shareholders and/or directors in companies incorporated in distant islands by Panama-based firm Mossack Fonseca in a bid to avoid tax.

Soon after the revelation, the government declared that action will be taken against said accounts held abroad by Indians and constituted a multi-agency group to continuously monitor information. have named 500 people, including film actors and industrialists who have allegedly stashed money in offshore entities.

The assurances given by the BJP-led government to bring back black money in India has largely being ineffective. Possible reasons would be polices that have been established to curb accrual of black money have not been enforced by the agencies or existing legal and administrative framework which has its own limitations.

Is it so easy to float a company abroad? Would they able to get evidences against the said entities named in What are the limitations, Business Standard explores.

Is it so easy to float a company abroad?

Some countries are following the disclosure norms reluctantly, while in some jurisdictions, the KYC norms are more liberal than others. According to the Reserve Bank of India (RBI) norms, liberalized remittances scheme (LRS) allowed individuals even minors to remit amount up to $250,000 ( Rs 1.65 crore as on date) each year abroad under self declaration. This is for studies, medical treatment, buying property overseas or holding shares in an overseas company or a combination of both.

Will they get evidences against entities named in

Getting information from other countries is a cumbersome task. There are limited options before Indian authorities which includes Letter Rogatory (LR), a formal request from a court to a foreign court for some type of judicial assistance. The most common remedies sought by LR are service of process and taking of evidence.

What are the limitations?

The areas where the government has serious lacunae is lack of skills of investigating agencies on the subject matter, dearth of manpower and limited reach of the agencies. These apart, the agencies are unable to deal with the possible misuse of the bilateral agreements between India and other countries by offshore entities that invest back in India to avoid taxes. The most common use is for avoidance of capital gains taxes by routing investments through offshore entities located in tax heavens such as Mauritius, British Virgin Islands, etc.

As the part of measures to curb illicit funds, In 2015, the government came up with a new law -- Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Under this, it had opened three months compliance window to disclose the quantum of assets parked overseas. The scheme was only able to get declarations of Rs 4,147 cr, yielding tax to the tune of Rs 2,488 crore, within the deadline.

After the compliance window, any undisclosed foreign income that is detected will henceforth attract tax at the rate of 30 per cent, a penalty of 90 per cent and a 10-year prison term.

Mainly, three revenue departments are responsible for detecting the flow of black money and curbing it namely the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) and Enforcement Directorate (ED), who have so far not been able to conclude the probe in the Swiss HSBC Bank list, the very first list, French government had handed over to India in 2011.

After a gap of almost five years, a Special Investigation Team (SIT) of black money has been constituted under two former Supreme Court judges. The five-year delay in investigations into the HSBC's leaked list of account holders have given enough room to the foreign bank and most of the tax evaders to escape the income-tax scrutiny.

Since then, the SIT is monitoring the probe into the black money case who quarterly informs the Supreme Court on the status of probe and recovery. However, no major breakthrough has been seen so far on the black money front.

The income tax department is already investing the old list cases and has launched prosecution against 140 individuals. So far, undisclosed income of over Rs 3,000 crore has been brought under the tax net deposited in foreign bank accounts.

According to official data, 628 Indians appeared in the HSBC list, where 200 were either non-residents or non-traceable, leaving 428 cases of residents which were found actionable. The net amount of peak balance for these 428 cases was about Rs 4,500 crore, government data said.

Apart from this, a second list was released in early 2015. It featured names of 1,668 Indians while the number of actionable cases stood at 1,195 after taking into account duplication and other factors. Collectively, these accounts had a balance of Rs 25,420 crore till 2007. However the government now claims that it was the part of the old data which the tax department already had.

First Published: Wed, April 06 2016. 09:09 IST