BOOK REVIEW: THE GLOBAL TAX AVOIDANCE INDUSTRY

BOOK REVIEW for THE PIONEER ON SUNDAY-BOOKS

TITLE: BLACK MONEY AND TAX HAVENS

AUTHOR: PROF. R. VAIDYANATHAN

PUBLISHER: WESTLAND PUBLICATIONS LTD.

CATEGORY: NON-FICTION

PRICE: Rs.  350/-

Year of Publication: 2017

The Global Tax Avoidance Industry

Prof. R Vaidyanathan, recently retired after 30 years of distinguished teaching at The Indian Institute of Management (IIM) Bangalore, is one of the small tribe of right leaning economists close to the evolving thinking of the Bharatiya Janata Party (BJP).

He has served as a committee member of national regulatory bodies such as the Reserve Bank of India (RBI) and Securities & Exchange Board of India (SEBI), and on the boards of several leading companies. He is currently the Cho S. Ramaswamy Visiting Professor of Public Policy at Sastra University, Thanjavur, in Tamil Nadu.

The subject matter of this book, has interested the author ever since NDA I, under Prime Minister AB Vajpayee, around the millennium year 2000.

Later, Prof. Vaidyanathan has served on a team constituted by then leader-of-the–Opposition LK Advani, with Ajit Doval, the current National Security Adviser, eminent lawyer Mahesh Jethmalani, and  ideologue and financial expert S Gurumurthy. 

Their report on Black Money and Tax Havens was released in two parts, in 2009 and 2011.

However, not much was done by the Government of the day about the issue, and it is only now, under the Modi Government, that the menace of Black Money is receiving the political will and policy attention that it deserves.

So, the release of this book, in October 2017 is indeed timely. That the erudite scholar-author has written this primer so simply for the layman, is by way of a very special benefit.

Just how much Black Money is there within India? It is anywhere between 10 to 20% of GDP- between Rs. 15 lakh crores and 30 lakh crores of the 2016-17 GDP of Rs. 150 lakh crores. But when the Indian economy was smaller, black money accounted for 51% of it, according to studies conducted in the eighties.

After demonetization, almost 100% of this 20% cash of today’s shadow economy entered the banking system willy-nilly. And a proportion of it is still hiding in plain sight within the banks.

The Modi Government, in its own version of “nudge” economics that has recently won a Nobel Prize for the US behavioral economist Richard Thaler, is deliberately shorting the amount of currency in circulation ever since.  

There are restrictions and penalties applied on cash transactions exceeding Rs. 2 lakhs. The quantum of digital transactions in white money, the use of mobile wallets, debit and credit cards, an an expanded access to the erstwhile unbanked, have all increased dramatically. The linkage between bank accounts, PAN cards, driving licences etc. and Aadhar cards will further make it difficult to fake identities.

The shadow economy is under siege and is being forced to join the mainstream via the online indirect tax system, the General Sales Tax (GST) also. Though still a work in progress, it is operative via multiple slabs and notable exceptions, since July 2017.

Direct tax collections too have already grown 16%. Lakhs of new assesses have been added. Hundreds of Income Tax probes are underway with regard to the larger unexplained cash deposits running into over Rs. 3 lakh crores.

Abroad, the Indian share of the illicit money lying in the tax havens of the world is estimated at a minimum of Rs. 65 lakh crores, nearly 50% of the 2016-17 GDP.

Between just 2002-2006, Global Financial Integrity Organisation (GFI), the Ford Foundation aided organization, headed by a Harvard and Brookings scholar, Raymond Baker, says Indians stashed Rs. 6.88 lakh crores ( $ 137.5 billion) in tax havens abroad.

However the global total of this “illicit” money is estimated at $11.5 trillion growing at about $1 trillion per annum.

Tax Havens, old as ancient Rome, don’t however just cater to criminals and dictators. They have uses for legitimate Governments too.

Prof.Vaidyanathan quotes Nicholas Shaxson to state more than half of world trade passes, at least on paper, through nearly 100 tax havens around the world - some with no tax,  others with very little tax, yet others with tax exemptions for corporations.

Over half of all banking assets, and a third of Foreign Direct Investment by multinational corporations are routed offshore, as a measure of discreet tax planning, secrecy, and to take advantage of various bilateral and multilateral tax treaties.

The US Government reported that 83 of the USA’s biggest 100 corporations had subsidiaries in tax havens in 2008. Richard Murphy’s Tax Justice Network says 99 of Europe’s 100 largest companies use offshore subsidiaries. The International Monetary Fund ( IMF) estimated in 2010 that small island tax havens alone accounted for $18 trillion on their balance sheets, a third of world GDP at the time. So tax havens are not about to close down!

What affects India most adversely is their being used for arms supplies and terrorism against it. And , of course, the widespread laundering of clandestine and ill-gotten gains.

Along with a number of other countries, including the US, at G-20 and other fora, India has been seeking intelligence on deposits made by Indians, entities owned by them etc.  This, with increasing success.

However, money being easy to move, the focus is shifting to real estate and property, often financed by monies routed through tax havens and shell companies.

Prof. Vaidyanathan’s book on Black Money largely concentrates on how it is generated and whisked away, mostly to tax havens abroad. It is a mine of fascinating information, engagingly written. To an extent it is a comparative study of how the nations of the world are attempting to tackle the ill effects of the phenomenon that is nearly universal. 

However, the legitimate uses tax havens are put to, and the benefit to their economies, cannot be wished away.

The happy thing is that the Modi Government has started in, implementing at least some of the many suggestions made in this worthwhile and good read of a book.

For: The Sunday Pioneer, BOOKS

(945 words)

13^th October 2017

Gautam Mukherjee