India’s efforts to track down tax evaders could soon see officials monitoring the funding flows of nationals living in Gulf countries.
“Some of the leading Gulf cities such as Dubai, Abu Dhabi, Bahrain [Manama] and Doha are major financial centres that are increasingly attracting Indian money that is leaving Swiss banks”
“In many cases these funds reach Gulf cities in the form of seemingly-legitimate investments.”
Indian government has drawn up a plan to track the suspicious financial dealings of non-resident Indians in close cooperation with respective foreign governments.
The government has already posted eight senior IRS officers in newly-created income tax overseas units in countries like the US, the UK and the UAE as part of efforts to trace illegal funds hidden away by Indians abroad.
These tax officials will function from the Indian missions in Washington, London, Berlin, Paris, The Hague, Abu Dhabi, Cyprus and Japan.
“The expansion of information exchange network at the international level will help in curbing cross-border flow of illicit wealth”
“It’s a long enough time for most to cover their tracks and move money to safer destinations.”
Although there are no official figures on the illicit funds, estimates by various sources say the total amount could be in the range of $1.5 to $2 trillion (Dh5.5 to Dh7.4 trillion). A significant portion of this money is believed to be in Switzerland.
Despite the new tax treaty India signed with Switzerland, analysts say it is unlikely that the Swiss banks will give away any details of the coded accounts that existed prior to January 1, 2012 when the treaty came into effect.
Analysts say India’s war on black money is likely to be a damp squib as many of the cross border fund movements are within the existing regulations.
A typical transaction to move money from Switzerland involves buying a shell company in a tax haven. Under the liberalised remittance schemes Indians can make investments up to $200,000 a year per person. This allows the Indian resident to hold shares of a paper company while having an account with a bank abroad.
Then the illicit money in coded accounts can be transferred to these companies in the form of trading income or earnings from consultancy services. The money can eventually flow back to India in the form of a legitimate foreign direct investment or portfolio investment.
With hundreds of thousands of NRI-owned businesses in the Gulf and Far East, tax evaders could use these businesses as conduits to escape the prying eyes of the taxman.