The UPA government may have gone into overdrive on the black money issue but it has so far failed to use a Swiss tax provision that will allow India to not just estimate how much money its citizens have illegally stashed away in bank accounts in Switzerland but to also earn revenue from them.
The Swiss authorities are unwilling to make these secret accounts public and will only provide foreign governments with details if they can prove an individual account is linked to illegal activity back home. This is an impossibility, since nothing is known about those accounts to begin with. However, Switzerland is prepared to share with foreign governments a portion of the tax levied on the interest that these foreign account holders earn, thereby opening a small window onto a hitherto hidden room.
The European Union was the first to seize this opportunity. Under an agreement between the EU and Switzerland that came into force in 2005, personal savings accounts held by EU nationals in Swiss banks are subject to a retention tax on interest income. Under the agreement, 75 per cent of the revenue so generated is transferred to the respective EU member state governments while the rest is allocated to Switzerland for associated expenditures. Currently, only individual personal accounts are covered, which is seen as a major drawback. The EU is now pressurising Switzerland to extend its provisions to assets other than such bank accounts also.
Though Swiss banks pay a paltry 1.25 per cent on personal savings accounts, the revenue generated through the retention tax is substantial. In 2008, the gross revenue from the retention tax (at 20 per cent, which is to go up to 35 per cent from July 1 this year) on interest income of EU taxpayers in Switzerland amounted to CHF 738.4 million (US$ 865.32 million, at current exchange rates). Out of this, US$ 649 million was transferred to EU member states.
Working back from an average tax rate of 20 per cent and an average interest rate of 1.25 per cent, it would appear that EU nationals have individual accounts in Switzerland worth approximately US$346 billion.
An EU-type agreement with Switzerland would similarly allow India to form the first firm estimate of the amount of money its citizens have illegally deposited in individual accounts there. But so far, the UPA government has not pursued the matter.
In response to Baba Ramdev's campaign, the government has publicised the measures it has taken against black money such as the signing of, and negotiations on, modified and new Double Taxation Avoidance Agreements (DTAAs) with over two dozen governments, including Switzerland, to facilitate exchange of banking information and entering into Tax Information Exchange Agreements with various other jurisdictions or so-called “tax havens” around the world.
However, in its negotiations with Switzerland, what India has given the go-by, perhaps unwittingly, is the provision to collect tax and thereby quantify the amount of black money held by Indians there.
In the Indian context, the revenue foregone can be significant considering that different estimates on the quantum of black money range from US$ 500 billion to $1,400 billion and a recent study by Global Financial Integrity has estimated the illicit money outflow to be $ 462 billion. If even a portion of that is held in Swiss accounts, India may at least have the satisfaction of earning some money from this stash — as a first step towards ensuring its eventual confiscation.
According to Mark Herkenrath of Alliance Sud — a Switzerland-based joint advocacy and lobbying entity of major Swiss development organisation which focuses on tax transparency and international financial markets, the Swiss government has announced several times that it would be willing to examine official requests for such savings tax agreements, in particular if requested by developing and emerging market countries. So far, no country, including India, has acted on this proposal and this is a fact that Swiss officials, speaking on condition of anonymity, have also confirmed to The Hindu.
Mr. Herkenrath said that it is surprising that the Indian government — if aware of this Swiss proposal — has not reacted to it and demanded inking of such an agreement along with the DTAA, particularly when it was one of the very first countries in the world to have asked Switzerland for a revised DTAA to include updated transparency standards and has got the same conditions regarding tax information exchange as European countries have obtained in their revised accords.
More significantly, while the revised DTAA with Switzerland — which is likely to come into effect from early next year after ratification by Swiss Parliament — does not allow any “fishing expedition” and will have no retrospective effect, the savings tax on interest income is leviable on all personal bank accounts in Swiss banks, irrespective of the date of the agreement, as long as the accounts still exist.
The Swiss retention tax mechanism can also indirectly help in segregating the illicit fund accounts from the legal ones. This is for the simple reason that the onus of proving the sanctity of the funds is on the account holder. In the case of EU states, for instance, about 43,000 voluntary declarations were received in 2008 and these represented an interest amount of CHF 820,370,039 (US$ 961,378,153).
Keywords: black money issue, Swiss banks
Not only the UPA govt but no Indian govt in power will ever initiate the process of earning even the retention tax, for the simple reason that they will not want the nation to know of, even the tip of the iceberg. We are deluding ourselves if we think that any Indian govt is ever going to implement any law that forces the repatriation of these funds to India, where they belong. The nexus between the corporate-bureaucratic-political classes is something that can never be dented, let alone broken.They all watch out for one another! The Indian public is just the illiterate golden goose in a coma, that just keeps laying the eggs. Forget the illegally-stashed money accumulated by powers-that-be, over the past few decades, even if present-day politicians/bureaucrats ensure efficient/fair tax collections/NO PARDON for tax offenders and utilise the public money not to enrich their coffers but indeed spend on improving education and infrastucture in our country - we will have won our battle!
In the run up to the 2009 Lok Sabha elections, Dr.Manmohan Singh promised to bring back all the black money within 100 days of forming the government. Now it is more than 800 days since UPA 2 came to power? What action has the PM taken? It can only be interpreted that he has cheated the nation with false promises.
You can make a sleeping man wake but not a person who acts like sleeping.Let us be very clear this government doesnt want to do good,they dont want corruption to go away ,what else can you expect,dont be surprised even if a report comes tomorrow stating that UBS had sent the list to Finance Minister and he returned it back stating that it violates the Secrecy Act.
Thanks to The Hindu for timely article.Especially when government is repeatedly declaring only with magic wand black money can be curbed, the article reveals goverment is not taking the simple steps. Very few media houses do undertake in depth study of serious problem, rather than giving breaking news.
All the individuals please read the article carefully where it says that the Swiss banks don`t share information about individuals who have stashed their Black money in their banks but will share the tax levied by these banks on the interest the people accrue from this black money with the Indian Government which makes even the Indian government a co-conspirator along with the persons who have stashed their Black money in these banks. What is the use of getting a portion of the interest without knowing the Black money stashers. Come on people understand the article and then comment over the government of India run by the UPA. Moreover this article nowhere criticizes the UPA GOVERNMENT.
The Indian Government does not really seem to be really intertested in fighting corruption, otherwise they would have used this proviso of the Swisss long go. India is only for the rich and mighty and the poor can languish in their poverty for generations.
Simply too good a Research!! Would love to know whether or not these provisions were applicable when NDA led by A B Vajpayee ji was also applicable. If Yes! they also have some thing to explain. Strongly feel its high time that Hindu has a News channel of it own and preferably a multilingual one!!
Thank yoy Ashok Dasgupta(HINDU).very imformative document. It is very eye relieving to watch such an article from a prestigious newspaper, I personally urge to the Hindu to publish this kind of article more and more so that the true image of the Government can come out . The Government is trying to fool the nation by making unnecessary bills while excluding the main issue or the primary issue of stashing black money abroad by its own politician and other corrupt people of the nation. If Hindu realy wants its Country to prosper then it have to take this issue as national headline as long as the black money do not come to our country.
Finally an actual, factual news article about the black money saga. Thank you author Dasgupta and The Hindu for your attempt to educate the public. I hope everyone will read this and realize the facts that are hidden by false allegations made by the govt and politicians to distract the public from the facts and its unwillingness and inability to pursue this matter.
Every leader or supporter of congress party is the most corrupt person on this earth. Every congress person is looting this country. We should ignore & bycott all Congress persons either they are our friends, neighours or relatives.
Appreciate Ramdev's courage taking on the entire nation's bad force together single handedly. We have seen this in so many movies. Looking forward to see what will happen in the end. One thing is for sure - Congress will never be back in power. Hope all these events will remain in people's minds forever, like DMK was washed out during recent elections, the same verdict will be given to Congress as well.
Looks like an Indian Egypt is required at the capital
The action taken by the UPA Government in night on innocent people, is not justified. Baba Ramdev and his supporter are not a terrorist, so you are going to arrest him at night. They are doing right thing for noble cause. Why the black money cannot be brought back to India. After brought back, it should be announce as National assets and utilized for building the nation.
The Congress or any other political party is simply not interested in tackling the issues of black money and corruption. How can they, when political parties are full of corrupt and tainted politicians who win elections by spending tons of black money gathered thru' corruption and fraud? So, any hopes that the UPA govt. will do anything concrete to tackle this horrendous problem amounts to building castles in the air.
Well written article. Hoping for similar stuff from all other newspapers .
@SatChit - you are mistaken. Switzerland provides only banking services. It treats all customers equally. If any country provides evidence of any of that stashed money being procured by their customer(s) through illegal means and there is a criminal case against such person(s), there is EVERY provision of Swiss law for those funds being returned to the rightful place(s). It is WE who are too weak to provide specific information. This is exactly what is called a 'fishing expedition' - to just try and see what we can find there. This is not going to work and it has nothing to do with Karma. If Karma has a role to play, it is what we are seeing with our own willingness to be inefficient and disorderly in our methods.
Almost all recently elected legislators in TN have declared themselves as having crores. The fact is they in fact do not have crores or even laks in their hands. But they have provided this false claim in anticipation of accumulating wealth in due course. I gather they were ordered to do so by their party leaders in Tamil Nadu and thereby increase the black money syndrome.
A turn-around to this is something in the line of assets-declaration clause. Effective say August 2011, Any tax-haven must report to the home state of any amounts of $100,000 and above deposited by foreigners. For past ills committed, Indian government may declare an amnesty for any individual that has foreign accounts stashed abroad - let this model a 'Reward-fine' relationship. For instance, first 6 month call - say August 2011 - Jan 2011: bring back the black money and deposit it in no-interest bank vaults and include it as part of income viable for taxation, no penalty. The next 6 months - add 1% penalty. The other next 6 months add 2 % penalty. So encourage black money hoarders to declare assets for the benefit of the nation, rather than punishing them. Dont burn bridges!
Should India blacklist Swiss banks or Switzerland block all India origin accounts? Will rest of India wait?
Do we really want to unearth blackmoney? Look at Pranab's son, who declares to have assets 0f Rs.9 crore as he files nomination for WB assembly elections. His total income from SAIL could not be that much even,after TDS,not making any deduction for his livelihood expenses and we look the other way because these are considered insignificant in today's dishonesty scenario, and Pranab remains in charge of the apparent crusade against ill-gotten wealth!
The article is an eye opener for the readers of your newspaper but what about this government headed by the economic wizard ManMohan Singh.Will this sick setup that we are forced to call as our rulers wake up from its deliberate inertia and seize this proviso that can yield some big money from the tainted cash stashed by our so called patriotic compatriots.This amount should be invested only for measures aimed at the upliftment of the people below the poverty line.This may sound unethical to quite a few but money is money and if it can used to alleviate the unimaginable sufferings of many of our countrymen,so be it.The end rather than the means matters at this juncture
Good article and information.
I have a gut feel that the Ramdev fast has more than what meets the eye. If you see the timing, it surprisingly coincided with the talks between the civil society and government failed. I think it is an attempt to divert attention from the civil society campaign. Ramdev is talking about one time solution, whereas the civil society was in process of drafting a law that would pre-empt corruption. Many vested interest is behind Ramdev. I may be wrong, but the conspiracy theorist in me is forcing me to think on those lines.
I feel the least the Govt. can do is to refuse visas abroad to people who have tax arrears and who have paid taxes on their disclosed black money. Also the Govt. can publicise the data every month in all leading News papers relating to Indian millionares who travel abroad without any exception detailing the countries travelled and FX spent by them.There cannot be any secrecy in these matters. This will definitely give a shot in the arm to discover the black sheep.
One way to reduce corruption by politicians will be to substantially increase the legal campaign contribution limits that can be made by voters. The financial records of all the political parties and every candidate's campaign income and expenses should be thoroughly audited by major accounting firms. Also, just to make it easy for a legislation to pass; grandfather the current politicians from getting executed for crimes committed upto the day of the passing of the law.
See the last line of clause, as long as account exits. So, people can move their money from account to some other bank and close the account. Clever techniques .. Hail COngress...
A 1st world country like Switzerland living off a banking business that sucks the blood of people who live in mud huts in 3rd world countries, Asia and Africa in particular. Fortunately, Karma cannot be avoided.
Great job The Hindu! You are fantastic. Keep providing such eye opener.
The biggest problem of this UPA (Ulta Palta Alliance)led by Congress is that most of the black money in Swiss banks belong to the Congressmen, their relatives, friends, Chelas and Chamachas. Being the weakest puppet placed as prime minister who keyed to adapt the principle of three monkeys that Do Not Hear, Do Not See and Do Not Speak there is nothing called Government exists in India so expecting any action from this most corrupt government India ever had is nothing but foolishness
'Where there is will there is way', our Government lacks the will to get back black money and act against the corrupt.How can any Indian expect that the Government did not know about this proposal from Swiss banks? Thanks to the HINDU for educating us with this facts.
Congress is trying to hide her own culprits. It is the Indian politicians and the high bereaucrats who have billions of dollars of money stashed in Swiss banks. So how will they make themselves public. I really appreciate Baba Ramdev's agitation and I am with him; in fact whole of India is with Baba Ramdev and I hope we will see a real India once again.
Would be a good idea if Anna Hazare and Baba Ramdev go to swiss and fast until death. Swiss govt might be compelled soon to act on the black money and provide all the information to civil society. It could really save time.
If Ramdev Baba's demand of Capital punishment to people who have swindled money and stashed in foreign banks is met with then I have no doubt that many congress leaders including Sonia Gandhi, Rahul Gandhi, Ahmed Patel will get death sentence. The entire UPA dispensation including Manmohan Singh are corrupt and fooling Indian public. They should be thrown out by any means.
When 'dhanlaxmi' is leading the UPA, what more could you expect??
It is quite obvious that whole plan by UPA to save a few big fishes, where some belong to one family. Ultimately later, will be ready leave India than to loose money as money is more precious than life if Indians get awared of the fact.
Mr. Herkenrath said that it is surprising that the Indian government — if aware of this Swiss proposal — has not reacted to it and demanded inking of such an agreement along with.....
Why will the govt. react? Its their money in those accounts.....
I think Ramdev Baba will have to add this point in the demand list...
The offshore banks which are tax-havens are actually controlled by International Bankers. The Swiss Banks fall under offshore Businesses and the Bankers mentioned above and many others are running these banks. Since Swiss Secret banking Laws Illegal Internationally this Nation Switzerland should be considered a terrorist and hence forced give up their Secrecy in Banking Business.
This issue seems to be getting clearer, as the Congress is swiftly moving on its back foot. If the Americans and the Germans can get all the information on Account Holders, then why not India? I am absolutely certain that businessman who have nothing to hide, and have money in Swiss Banks, will not hide behind this information. As they have done nothing wrong. So why is the Central Government on its back foot on this issue. Double taxation is not even an issue (please refer to the directive by the President of UBS made a couple of years ago). So if Pranab thinks he can just fool the Indian public by making this into an excuse, i will recommend him to think again, as Indian public knows much better. Also his excuse of things taking their time to sort out themselves does't hold steam either. Germans got their information within a couple of weeks, and so did the US. If the resolve is there, information will come. Congress, don't you win elections that way? With resolve. So why are you on the backfoot?
The congress party has much to hide. The party is fighting shy to unearth black money. All parties should get their accounts audited. Contributions to parties can be tax deductable. Black money in real estate is about 50percent.
Well written article and it raises lot of questions about the will of the Indian govt. Where there is a will there is a way.
Why doesn't the press pose these questions to the Indian PM during press conferences? Press asks unnecessary questions in media which makes no sense about Afganistan and Pakistan which the common man don't care. Congrats to The Hindu for posting these type of articles from knowledgeable authors. It's time Indian govt starts to act, people are losing patience.
News reports such as this one expose the blatant two-facedness of the UPA government on fighting corruption. When pressed by a hunger strike they make the right noises just to fool the people without meaning any of it. Unfortunately, the media is hand in glove with the government for the most part.
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