Sunday, August 14, 2011

Global Financial Integrity (GFI) is a non-profit, research and advocacy organization located in Washington, DC. GFI advocates and conducts research on national and multilateral policies, safeguards, and agreements aimed at curtailing illicit financial flows and enhancing global development and security.

Report Shows India Lost Billions Due to Tax Evasion, Corruption

Tax evasion and corruption have cost India hundreds of billions of dollars according to a new report. The finding comes at a time when the issue of graft has led to a political storm in the country.

U.S.-based research and advocacy group Global Financial Integrity's report estimates that $462 billion in illicit money has been taken out of India over the last six decades.

Much of that money was siphoned out after India opened up its economy in 1991. The report estimates that an average $16 billion a year was funneled overseas from 2002 to 2006.

The illicit transfers came through tax evasion and corruption, and caused a huge loss for India. Private businesses are the main culprits.

"The high net worth individuals and the corporations, basically it is the private sector that sends money out through illegal means," Kar said. "The government itself does not take part in illicit transfers. It is corrupt politicians, corrupt individuals in the private sector, business men, corporations etc."

Main causes

The primary driver of illicit flows is trade mispricing. That is, declaring a lower-than- market price for goods which are exported, and higher-than-market price for good which are imported.

The report says these outflows of money contribute to deepening poverty and a widening gap between the rich and the poor.

Transparency International ranked India 87th out of 178 countries on its 2010 International Corruption Perceptions Index.

What affects poor people most in the country is not corruption in the private sector, but corruption in the administration.

"Services that they should have got for free, they actually had to bribe officials in order to get those services," Jha said. "Those services included banking, housing services, police services, so on and so forth. So the fact that poor actually has to bribe because he has no other way out, that is something very, very alarming. What is also alarming is the fact that there is no effort, at least common people do not see any effort made by the government to actually curtail corruption."

Political scandals

In recent weeks, the issue of corruption has raised a political storm, and there are growing demands for accountability for a series of corruption scandals involving government officials.

Opposition parties are demanding the prosecution of former telecommunications minister A. Raja. He resigned recently after federal auditors said the government suffered a loss of up to $39 billion due to the sale of licenses for airwaves used to transmit mobile phone calls at undervalued rates. Several projects related to the Commonwealth Games that India staged in October was also allegedly bedeviled with corruption.

The Indian Finance Minister has said global banks must end their secrecy for the menace of black money to end. Is this practical and effective?

Bank secrecy is only a small part of a big question. What we advocate is greater transparency in the global financial system. The shadow financial system comprising tax haves, trust accounts, money laundering techniques and mispricing trade — a structure designed to move money across borders furtively and effectively — must dissipate. I like my bank account to be private. That does not mean it has to be secret.

What do you suggest the government must do to curtail the flow of illicit money?

The government must exert its influence globally to curtail the shadow financial system, particularly within G20 where it plays a key role. There are things Indian can do by itself. In our analysis, trade mis-pricing is more responsible than any other mechanism for flow of illicit money from India and other countries. India should take a strong role in determining the identity of the real owners of entities that do business, particularly those established in Mauritius and other tax havens. We can accomplish this by instructing banks against receiving investments from abroad without knowing their origins. This is not difficult, but we need the will to do it. In the US, HSBC is under investigation for helping people of Indian origin living in US evade taxes. Nearly 160,000 were assisted by HSBC as a group to evade tax. This opens an opportunity for India to look at cases of tax evasion. Broadly speaking, it is difficult to recover money gone abroad. It makes sense to focus on curtailing the outflow of money.

Are you satisfied with the government's efforts to tackle black money?

A pot being filled with water is leaking, People are behind collecting the leaked water but not stopping the leakage. Our government is claiming that they are all out to retrieve black money invested in swiss bank etc. when in fact no emergency level action is yet to be taken to stall the generation of black money. Why? Because black money is generated with the green signal of the government.


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