The recent protocol to amend the Double Taxation Avoidance Agreement (DTAA) between India and Switzerland offers a glimmer of hope to those in India seeking access to bank accounts held by Indian nationals in Swiss banks. It paves the way for the sharing of certain types of banking information so far protected by the Swiss secrecy laws. The caveat is that only prospective information, and that too mostly tax related information, can be shared. An omnibus clause that provides for the use of information for purposes allowed under the laws of the two countries appears to be too general and in any case will not give a carte blanche to the authorities here to go after Indian money said to be stashed away illegally. As the Finance Minister has pointed out, the agreement is between two sovereign countries and it will be extremely difficult to wrench concessions relating to anything that is so closely identified with the other country's financial sector. In fact, it is the assurance of secrecy, besides some positive features — notably, the extremely stable political and economic environment — that has made Switzerland and some other countries most attractive for overseas investors.

Even the United States with far greater financial muscle has been only partly successful. In August last year, after a long and frustrating legal battle, Switzerland's second largest bank, UBS, agreed to disclose the names of 4,450 American account holders — far fewer than in the wish list — suspected by the U.S. authorities of tax evasion. In return, the case against the bank was dropped. In India, there is a deep-rooted public perception that huge sums of Indian money have been secreted away overseas. But the situation is unclear. As of now, there are only vague estimates and they range from Rs.30 lakh crore to Rs.70 lakh crore. Whatever the actual figure, it would be naïve to think that all of such deposits have sought foreign sanctuaries only to avoid Indian laws. A large proportion of them might well belong to those who do not come under Indian tax or other jurisdictions. The fact, however, remains that tax evasion facilitated by foreign tax havens is a big threat to India's public finance. Despite lower taxes and liberalised exchange control regulations, indications are that the flow of money to tax havens has increased substantially. Fortunately, there has been a growing international backlash against tax havens within the OECD and in other forums such as the G20. India needs to buttress its case through hard facts and evidence gathered through systematic investigation. The tax protocol with Switzerland is welcome but it is only the first step.

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