Migrating HNIs a ‘substantial’ tax risk, says CBDT

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New Delhi | Published: April 6, 2018 4:48:33 AM

23,000 high net worth individuals (HNIs) have left India since 2014 including 7,000 in 2017 alone, the government has commenced a process to evaluate the “substantial task risk” such migrations pose and formulate a policy response.

HNI, tax risk, tax, CBDT, economy23,000 high net worth individuals (HNIs) have left India since 2014 including 7,000 in 2017 alone, the government has commenced a process to evaluate the “substantial task risk” such migrations pose and formulate a policy response.

After a recent global survey, quoted by Morgan Stanley’s Ruchir Sharma at an event here, said as many as 23,000 high net worth individuals (HNIs) have left India since 2014 including 7,000 in 2017 alone (the highest numbers for any country), the government has commenced a process to evaluate the “substantial task risk” such migrations pose and formulate a policy response. According to an office order issued by the Central Board of Direct Taxes (CBDT) on Tuesday, “for examining the taxation aspects of such (HNIs), a (five-member) Working Group has been constituted”. The committee will hold its first meeting here on Friday. Being non-resident has major tax benefits as India, like most other countries (with the notable exception of the US), follows a residence-based tax system. In a residence-based tax system, a resident is taxed on his or her global income while a non-resident is taxed on income sourced (received or accrued) in India. Besides, the non-resident is also eligible for beneficial treatment under the country’s bilateral tax treaties with other countries while dividend received by a non-resident from an Indian company is exempt from tax in India. While a new wave of HNI migration is a global phenomenon, it is believed that apart from other reasons like pursuit of better work, education and living conditions, tax mitigation (even evasion) is also a reason for the flight.

Tax experts welcomed the CBDT move but cautioned that any change in policy that might result from the exercise should be targeted at the “intended audience”, that is, those who migrate principally to evade taxes. They also cited that fact that existing laws including the Prevention of Money Laundering Act have enough teeth and scope — including a facility for the tax man to reopen cases involving foreign assets for up to 16 years — but expressed doubts about the “practical ability” of tax authorities to bring to the account those who migrate precisely to escape the reach of Indian law. The current phenomenon could also be an opportunity for India to re-examine any residual obtrusiveness of Indian taxation system after recent relaxations, they said, adding that more benign tax rates might also help check the HNI migration. In fact, the Nirav Modi episode had prompted the government to fast-track the Fugitive Economic Offenders Bill (FEOB), which is meant to make it easier for it to confiscate the assets of economic offenders fleeing India to escape the reach of law. The Bill, still awaiting Parliament’s approval, will define a “fugitive economic offender”, empower special courts to declare one so and allow designated investigating agencies to attach such a person’s assets, without any encumbrances, even when he is not convicted by a court of law for the relevant offences. The CBDT office order said: “The Working Group shall be responsible to coordinate with various Divisions/Directorates of Board as well to field formation to formulate India’s position for various aspects related to taxation of migrating (HNIs). The Working Group shall also make recommendations for policy decision in respect of tax risks of migrating (HNI) population.”

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