It will help check black money and shore up revenue collections
Even as the UPA government is disinclined to enter into a U.K.-type tax treaty with Switzerland to tap a ready source of funds each year that is available on a platter, pressure appears to be slowly mounting on the country's tax authorities to explore this avenue as one of the means to check black money and shore up revenue collections.
Stressing making use of the new window that has opened up for India to explore the possibility of entering into similar pacts with Switzerland, PwC Executive Director Rahul Garg said: “It [U.K.-Switzerland treaty] has opened a new chapter and new order to deal with tax havens. Now other countries can also negotiate similar treaties with Switzerland.”
Under the treaty the United Kingdom entered into with Switzerland last month, Swiss authorities have agreed to tax the illicit funds held by U.K. citizens in Swiss bank accounts and share the proceeds while not divulging the identity of account holders. As per the accord, Switzerland will immediately pay Britain $ 5 billion upfront towards past taxes and henceforth deduct and remit a tax of 48 per cent on income earned and 27 per cent on capital gains.
According to a recent report, the deal could see about £ 3 billion to 6 billion being handed over to HMRC (Her Majesty's Revenue and Customs) each year by the Swiss authorities. Germany also entered into a similar pact with Switzerland earlier.
However, according to the Central Board of Direct Taxes (CBDT), India cannot have a treaty with Switzerland to tax deposits of Indians in Swiss banks “because the environment is not conducive.” A senior CBDT official has been quoted by PTI as saying: “The issues of advanced countries are different. Their economies are in slowdown mode. They need revenues and their priority is tax.”
However there is no gainsaying the fact that the Indian government also is in need of revenue on a massive scale. When India inked a revised Double Tax Avoidance Agreement (DTAA) with Switzerland in August last year, the facility of receiving a portion of the tax proceeds on illicit funds stashed away in Swiss banks was available to the government even then. The authorities, however, did not raise this issue at all.
This was confirmed by Swiss authorities in a story that appeared in The Hindu (June 4, 2011) titled ‘A Swiss window to Indian black money the UPA won't look into.' Among other things, the signing of such a pact with Switzerland — as has been entered into by EU nations and available to all emerging and developing economies — has two distinct positives. It ensures a gradually rising flow of funds into the exchequer and second, it helps in distinguishing between legal accounts and illicit funds over the years. This is for the simple reason that the onus of proving the sanctity of funds is on account holders.
Since the revised DTAA will allow India to obtain banking information from Switzerland in specific cases with prospective effect from April 1, 2011 onwards without going on any fishing expedition, the argument that the government wants to nab the black money holders and not be satisfied with just a portion of the tax proceeds is debatable, according to tax analysts.