India drafts Caribbean into ‘black money’ fight
Friday October 07 2011 | 06:49 AM

India has put into force tax information exchange agreements (TIEAs) with three Caribbean international business centres and completed negotiations with two more.

Now, India is hoping to use these agreements to pull its nationals who operate within the Indian shadow economy and funnel so-called “black money” into investments overseas back into its tax net.

According to Arun Kumar, professor of economics at the Jawaharlal Nehru University and author of the book ‘Black Money in India’, at least US$70-80 billion flows out of India every year into overseas investment hedges like gold or real estate. Kumar estimated that the cost to India of its “black economy” was 5 percent of GDP growth every year since the mid-70s. But for this, he said, India’s economy would have beenUS$ 9 trillion, making it the second largest economy in the world.

Reports are that India’s Finance Ministry, through its foreign taxation wing in the Central Board of Direct Taxes (CBDT), is reviewing and signing a host of TIEAs and Double Taxation Avoidance Agreements (DTAAs) to take forward its enforcement against black money.

So far, the government has completed negotiations of 16 new TIEAs with Bahamas, Bermuda, British Virgin Islands, Isle of Man, Cayman Islands, Jersey, Monaco, Saint Kitts and Nevis, Argentina, Costa Rica, Guernsey, Macau, Liberia, Marshall Islands, Congo and Gibraltar, nine of which have been approved by the cabinet. The TIEAs with Bahamas, Bermuda, British Virgin Islands and Isle of Man have been signed and have come into force.

And it is working as one anonymous government official confirmed that information regarding Indians having illegal accounts in foreign banks have been obtained from foreign authorities under the prevailing double taxation avoidance agreements.

This is all part of a move by India to negotiate with 74 countries to broaden the scope of the Article concerning exchange of information to specifically include banking information and information which has no domestic interest. So far, negotiations/renegotiations of DTAAs with 37 countries have been completed, reports the Finance Ministry.

Added to this, the Finance Ministry stated that the government is working on various measures, which include incorporation of a new legislation in the Direct Taxes Code Bill to unearth black money, creation of the Directorate of Income Tax (Criminal Investigation), and increase in manpower for the Foreign Tax Division, which deals with the work for exchange of information.

As a part of this capacity building and skill development, 51 senior officers were sent abroad for specialised training in the field of international taxation and transfer pricing in 2010-11. The government has already set up income tax overseas units in two Indian missions abroad and eight more such units are being set up in the current financial year to strengthen information exchange mechanism. The government has also set up a committee under the CBDT to examine existing legal and administrative framework to deal with the menace of generation of black money through illegal means, among others.