The finance ministry is looking at identifying ways to counter those nations that do not cooperate with India in curbing money laundering and terror financing.
The ministry has decided to set up a panel that would crystallise counter-measures against non-cooperative jurisdictions abroad. These are countries where tax evaded money from other countries gets laundered through a series of transactions and sent back as foreign investment. The decision to set up the panel was taken at a recent meeting of the Central Board of Direct Taxes (CBDT). There could also be an announcement in this regard in the forthcoming Budget , sources said.
The panel may recommend some changes to India?s own tax laws to empower the authorities to take effective measures in curtailing such illegal fund flows, sources said. It may also suggest renegotiation of tax treaties with certain countries. “It (negotiations) is to remove the secrecy clauses and align the provisions on exchange of information with the growing international co-operation in the area,” an official said.
Earlier, FM Pranab Mukherjee had ordered a study to find the extent of black money Indians held within the country and abroad. But extracting information from other nations about the unaccounted money in their banks held by Indians is difficult. Recently India became a member of the Financial Action Task Force, an inter-governmental agency responsible for setting global standards on anti-money laundering (AML) and combating financing of terrorism (CFT).
This framework for exchange of information is expected to strengthen India?s information gathering about illegal cross-border fund flows.
India?s proposed Direct Taxes Code (DTC), now being examined by a Parliamentary committee, has several provisions that could help the country in accessing details of unaccounted money lying abroad. India is also negotiating for Tax Information and Exchange Agreements (TIEA) with 22 priority tax jurisdictions and Direct Tax Avoidance Agreements (DTAA) with 65 countries. Mukherjee has also asked CBDT to find ways to deepen the tax contribution of high net worth individuals (HNIs) to the exchequer. Mukherjee has also sought help from economic think tanks NIPFP, NCAER, Indian Statistical Institute and NIFM on assessing and dealing with the parallel economy. India has little experience in estimating its black economy. An NIPFP study in 1983 put the size of India?s parallel economy at between Rs 31,500 crore and Rs 36,786 crore, less than 30% of the then GDP of the country. In absolute terms, that figure looks a gross underestimate at present with the GDP in 2009-10 estimated at Rs 44.5 lakh crore.
Although there have been efforts in recent years to expand the tax base through various measures, the parallel economy seems to have only flourished. The Swiss government has given a figure of $1,500 billion of unaccounted money held by Indians in banks in that country. The US-based Global Financial Integrity said in a recent study India had been drained of $462 billion (over Rs 20 lakh crore) between 1948 and 2008.