Income Tax

Global Dimensions of Black Money

The problem of tax evasion and the generation of Black Money isn’t new. As far back as 1936, the Ayers Committee, while reviewing the Indian income tax administration, suggested large-scale amendments for securing the interests of the honest assessee and effectively dealing with fraudulent evasion.

There was an appointment of an Income-tax Investigation Commission in 1947 to investigate tax evasion and suggest measures for its prevention in future. A Taxation Enquiry Commission (1935-54) also dealt with the question of tax evasion, followed by recommending several legal and procedural changes. In 1956, a specialised study was made of the Indian tax system by Nicholas Kaldor, which also included the prevalence of tax evasion, and his recommendations resulted in several amendments and the introduction of new laws like the Wealth Tax Act.

A Direct Taxes Administration Enquiry Committee, which was established in 1958, suggested an integrated scheme of taxation for compliance facilitation and preventing tax evasion. It also contributed substantially to the reorganisation of tax administration. Important reforms on the basis of the reports of various committees and the Administrative Reforms Commission have been made from time to time for strengthening tax compliance and plugging tax evasion, which leads to the generation of black money both within the country and globally. The present article shall discuss the global dimensions of Black Money and the global initiatives of India to tackle this issue.

Global Dimensions of Black Money

 In lieu of such drastic transformation of the factors leading to the generation of black money and the globalised development that facilitates them, the Government of India (GOI) has resorted to the following strategy:

• Joining The Global Crusade Against Black Money: The financial crisis of 2008 and the consequential need for the protection of revenues further strengthened the need for coordinated global efforts for tackling the challenges due to tax haven-mediated arrangements for tax evasion.

India has been a strong proponent of transparency and the exchange of information for the purpose of tax and has pushed the G20 forum to exert pressure on countries that don’t conform to the international standards of transparency.

India played a vital role in developing international consensus for taking action against tax havens at the London summit in April 2009. In its September 2009 summit at Pittsburgh, the G20 gave a call for developing a toolbox of countermeasures against non-cooperative jurisdictions.

The G20 leaders devised a ‘toolbox’ with possible sanctions, suggesting the below-mentioned measures:

• Increased disclosure requirements by the assessees and financial institutions for reporting transactions involving non-cooperative jurisdictions;
• Withholding taxes regarding a wide variety of payments; 29
• Denial of deductions regarding expense payments to payees residing in a non-cooperative jurisdiction;
• Reviewing tax treaty policy
• Requesting the international institutions and regional development banks to review their investment policies;
• Focusing on the principles of tax transparency and information exchange when designing bilateral aid programmes.

It was on the initiative of India in November 2010 at the Seoul Summit, due to which the G20 considered concluding the Tax Information Exchange Agreements¹ (TIEA). Prior to this, some countries weren’t intending to enter into TIEAs and insisted upon entering into DTAAs. Both the DTAA and TIEA are effective tax information exchange mechanisms. Since negotiation of a DTAA is a little time-consuming, which can delay the development of the mechanism for effective exchange, India had pleaded that a country can’t refuse to sign a TIEA if the same has been requested by other countries. It was again the initiative of India that led to the acceptance of this, and now there has been a global consensus that a country can’t insist on a DTAA and must conclude a TIEA upon being requested by the other countries. After this development, many countries, which earlier insisted on DTAAs, have now agreed for concluding TIEAs with India as well other countries of the world.

• Global Forum: There was the reconstitution of the Global Forum due to the global financial crisis. G20 leaders provided it with a renewed mandate in 2009 and requested it to help secure the integrity of the financial system by uniformly implementing global standards of transparency.

Its mandate showcased the increasing need for international cooperation between tax administrations in the globalised era. India is vice chair of the Peer Review Group of the Global Forum, which conducts peer reviews of the member and relevant jurisdictions. Such a Review is carried out in 2 phases.

Phase 1 deals with the legal framework of the jurisdiction, while Phase 2 deals with the practical application of that framework.

The peer review ensures the adherence to a minimum standard of transparency and exchange of information for tax purposes in the jurisdiction in the world.

This minimum standard has three basic components: appropriate access to the information, availability of information and the existence of exchange of information mechanisms.

 The initiative of India in these meetings has resulted in numerous jurisdictions changing their laws and administrative procedures to conform to international standards. Indian assessors nominated by the government have also contributed significantly towards achieving this result.

Multilateral Convention on Mutual Administrative Assistance in Tax Matters

This was developed jointly by the OECD and Council of Europe and was available for signature by the member states of both organisations on 25. 01 1998. This multilateral instrument, which was signed by 15 countries initially, prescribes all possible forms of administrative cooperation between states in the collection and assessment of taxes, in particular with a view to tackling the problem of tax evasion and avoidance. Responding to the April 2009 call by the G20 for a global instrument for fighting international tax avoidance and evasion, the Convention has been brought up to the internationally agreed standard regarding information exchange for the purpose of tax, in particular by asking for the exchange of bank information upon a request through an amending Protocol, which was enforced on 01.06. 2011. The amended Protocol also prescribes the opening of the Convention to all countries. The convention was signed by India on 26.01.12 and ratified on 02.02. 2012, thus becoming the 1st country outside the OECD and European countries to join it.        

Financial Action Task Force

India, after meeting the strict evaluation norms prescribed by the FATF, was granted full-fledged membership (34th Member) in June 2010. Further, in recognition of efforts in India in this respect, the Asia Pacific Group (APG) on Money Laundering & Terrorist Funding chose India as the Co-chair of the Group at its annual meeting held in Singapore in July 2010.

 In furtherance of the objectives with regards to joining the global efforts against money laundering and encouraging the national programme, the country successfully hosted the annual meeting of the APG b/w 18 & 22 July 2011 at Kochi, Kerala. India is fully committed to complying with the norms of FATF regarding KYC and customer due diligence, and international cooperation. Illegal transfer of funds and their recovery.

United Nations Convention against Corruption

On 09.052011, India became the 152nd country that ratified the United Nations Convention against Corruption, which was signed on December 9 2005. The purposes of this Convention are:

• Promoting and strengthening the measures for preventing and combating corruption more efficiently and effectively;
• Promoting, facilitating, and supporting international cooperation and technical assistance  for preventing and fighting  against corruption, including in asset recovery;
• Promoting integrity, accountability measures, and criminalising the most prevalent forms of corruption in both the public and private sectors.

United Nations Convention against Transnational Organized Crime

On 5 May 2011, India ratified the UN Convention against Transnational Organized Crime (Palermo Convention), which was signed on 12.12 2002. The purpose of this Convention is the promotion of international cooperation in preventing and combating transnational organised crime more effectively.

 Under this Convention, countries are required to take measures against the smuggling of migrants by land, sea, and air, as well as the manufacturing and trafficking of firearms and ammunition. The Convention can help India in getting international cooperation in tracing, freezing, seizure and confiscation of the proceeds of crimes as per a wide range of mutual legal assistance clauses, even with countries that don’t have any mutual legal assistance treaties.

International Convention for the Suppression of the Financing of Terrorism

India signed the International Convention for the Suppression of the Financing of Terrorism on 08.09. 2000 and ratified it on 22.04. 2003. It needs each state party to take suitable measures, as per its domestic legal principles, for detecting and seizure, freezing, or forfeiture of any funds allocated or used for the purposes of commission of the offences described, and take alleged offenders into custody, prosecuting or extraditing them, cooperating in preventive measures and countermeasures, and exchanging information and evidence needed in related criminal proceedings. The offences prescribed in the Convention are deemed to be extraditable offences b/w state parties under existing extradition treaties & under the Convention itself. It would not only strengthen the reach of India against those financing terrorism but also act as a check against the generation and accumulation of black money by way of terrorism or organised crime.

United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances

India also joined the UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances on 27.03. 1990. The purpose of this Convention is the promotion of cooperation among the parties to enable them to effectively address the various aspects of illicit traffic in psychotropic substances and narcotic drugs with an international dimension. The Convention also calls for the criminalisation of money laundering, seizure freezing, confiscation of the proceeds of crime, and international cooperation.

Indian Customs is represented in matters in relation to international cooperation in enforcement by the Department of Revenue Intelligence. It coordinates cooperation under numerous bilateral agreements or the International Convention on Mutual Administrative Assistance for the Prevention and Repression of Customs Offences (Nairobi Convention 1977). India has signed bilateral cooperation agreements/MOU with 20 countries. This arrangement helps to deal with customs offences having direct linkages with the generation of black money.

Egmont Group

An Egmont group refers to a group of FIUs for free exchange of information and international cooperation. The admission of FIU-IND as a member of the group was made in May 2007, and since then, India has been playing a vital role in facilitating cooperation amongst FIUs via this Group. At the Group’s plenary meeting held in June 2010, India was elected as the co-chair of the Asia group, which has provided Indian representatives with an opportunity of participating in the meetings and deliberations of the Egmont Committee, which is the policymaking body of the Group.

Conclusion

This demonstrates that India has been actively contributing to the global crusade against black money by pointing out the problems of transparency in global forums, has joined various international conventions, and promoting the full flow of information amongst jurisdictions.

Frequently Asked Questions

Read Our Article: Impact of Black Money on the Indian Economy

1. https://en.wikipedia.org/wiki/Tax_information_exchange_agreement