Double Standards: Secrecy for Demonetisation, But a Long Rope for Swiss Bank Accounts

In the India-Switzerland agreement, there is no sense of urgency to bring back the kind of black money that will increase tax revenues without burdening the common person.

A tram drives past the building of Swiss banks UBS and Credit Suisse at the Paradeplatz in Zurich. Credit: Reuters/Arnd Wiegmann

A tram drives past the building of Swiss banks UBS and Credit Suisse at the Paradeplatz in Zurich. Credit: Reuters/Arnd Wiegmann

In late September 2016, Switzerland became the latest country to ratify the Joint Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters as amended. Its ratification will take effect as per procedure in the convention on January 1, 2017.  The convention is multilateral and is stated to have been developed to ensure mutual assistance in tax matters and in particular effective exchange of information to enable countries to maintain sovereignty over the application and enforcement of their tax laws. Before that, Panama had acceded to the convention, in the face of mounting world pressure following the Swiss HSBC leaks and the Panama leaks.

Yet India has signed a joint declaration with Switzerland on November 22, 2016, for the implementation of automatic exchange of information, agreeing to the release of financial information by Switzerland only from September 2019 onwards, on an automatic basis and that too only of accounts held by Indians in Switzerland for 2018 and subsequent years. This is as per the press communiqué of the Central Board of Direct Taxes, whose chairman signed the declaration on behalf of India. Thus there is ample amount of time for black marketeers stashing their money in Swiss accounts to move it.

This is nothing but a highly questionable lukewarm approach on the part of the Indian government, which has given no time or consideration to the common person and banking organisations in the ongoing demonetisation process that is ostensibly meant to check black money, and yet has given so much time and such a long rope to those who intend on evading taxes to move their accounts to other jurisdictions that have not signed or not yet ratified the amended OECD convention.

The urgent and rushed-through demonetisation stunt is also in sharp contrast to the action taken in four years after French authorities gave to the Indian government a list of 628 Indians who held accounts in HSBC’s Swiss banking arm in Geneva, of which 428 were found to be actionable cases. The government had completed assessment only in respect of 128 cases and launched only 60 prosecutions for wilful attempt to evade taxes and failure to furnish accounts and documents etc. Rival parties of the Congress and BJP such as the Communist Party of India had alleged when the Swiss leaks hit the headlines that many accounts holders are very closely associated with the former UPA and present NDA governments. The party had also recalled that Prime Minister Narendra Modi had promised during the general election to unearth black money and transfer from the confiscated amount Rs 15 lakh to each family in India.

Given the aggressive state propaganda on demonetisation is about dealing with unaccounted money, it may be useful to look at the position of the magnitude of black wealth in relation to other sources and also question why such aggressive measures were not taken in these areas, where the consequences would not be felt by common people. India ranked 16th in the Swiss leaks database of the International Consortium of Investigative Journalists with $4.1 billion (approximately Rs 268.2 million) in just the leaked Swiss files. There were 26,999 bank accounts of Indian clients and 1,668 clients. The maximum amount of money associated with a client connected to India was $876.3 million. The amount detected through the leaked files by itself amounts to 7.07% of the revenue collection from taxes on wealth in India, which was Rs 3792.3 million in 2013-2014.

In a hearing before the Supreme Court in January 2015, senior advocate Ram Jethmalani, the petitioner in whose case the Special Investigation Team was constituted, had accused the government of delayed action. This, he said, was despite promises in the party’s manifesto that “we will also positively engage with foreign governments to facilitate information sharing on black money”. Modi had said in his Independence Day address in 2014 that Rs 6,500 crore stood as illegal wealth. The figure of Rs 2,400 crore disclosed pursuant to the legislation titled Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, still fell short of this Rs 6,500 crore.

A confidential report by the National Institute of Public Finance and Policy on the true extent of India’s parallel economy quantified it in 2013 at 75% of GDP. The black economy is powered mainly by the higher education, real estate and mining sectors, the report said.

Because of this loss of revenue and a skewed choice of state responsibilities and beneficiaries, a disproportionate burden of tax is borne by the common person. Take, for instance, a woman vendor in the city market of Goa’s capital Panjim. She pays sopo (daily rent) of Rs 10 per day, which translates to about Rs 3,650 per year. She pays sales tax and value added tax on every little thing that she purchases, even if it be toothpaste or biscuits, while the affluent businessman who has stashed his money in offshore tax-havens may actually pay little or nothing, because even the products he purchases are not accounted for.

Even the Economic Survey of India 2015-16 noted that India needs to increase its tax-GDP ratio and spend more on health and education. Yet, in terms of the agreement just signed by India with Switzerland, there is neither the purposefulness nor the sense of urgency to bring back the kind of black money that can really increase the tax revenue without burdening the common person, the way demonetisation has done.

Then there are Goa’s casinos, which not only have visibly negative implications for the vulnerable members of the gamblers’ families, but by their very nature enable non-disclosures of money and consequent tax evasion. Each government of the day claims that casinos are a necessary evil to broaden the revenue base and generate welfare schemes for widows and so on. But what they do not say is this: the revenue base is in the first instance narrowed by tax evasion made possible by projects such as casinos, by enabling non-disclosure of monies and money-laundering.

India could have done far better in terms of mounting pressure on Switzerland to disclose in 2017 the details of past and present accounts, given that global pressure is still on Switzerland to disclose account details.

Albertina Almeida is a Goa-based lawyer and human rights activist.