With annual illicit capital outflows from emerging and developing economies estimated at $725-810 billion, India on Wednesday pitched for greater global cooperation and alignment of taxation regimes to effectively tackle the growing menace of tax evasion and black money.
In his inaugural address at the 4th International Tax Dialogue (ITD) conference on ‘Tax and inequality' co-hosted by the Union Finance Ministry here, Finance Minister Pranab Mukherjee quoted illicit fund flow figures from the global financial integrity report to drive home the point that not enough was being done globally to end the menace of tax evasion.
“The opacity of tax systems in some of the jurisdictions is adding to the challenges. There has been some movement on these issues in response to the initiative by the G-20. We need to pursue this to its logical end,” Mr. Mukherjee said, while pointing out that opportunities as well as solutions to many common problems “are getting increasingly tied together” in the current phase of globalisation which has brought countries closer to each other leading to a multi-faceted integration of societies with a collective destiny.
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Calling for effective action in curbing the menace, Mr. Mukherjee noted that despite the strategy under implementation, the complexity of cross-border transactions was on the rise and presented a serious challenge to tax administrators in bringing equality. “Tax evasion undermines the intended benefits of a progressive tax policy” and “resolution of these issues requires international cooperation and alignment of tax systems for better cross-border compliance,” he said.
Mr. Mukherjee also sought to inform the delegates that the Indian government adopted a five-pronged strategy to deal with the issues of tax evasion and black money. The strategy includes joining the global crusade against black money and creation of a legislative and institutional framework to deal with illicit fund flows.
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Turning to the issue of ushering in radical changes in direct and indirect tax laws at home, Mr. Mukherjee hoped that the Direct Taxes Code (DTC), which seeks to replace the archaic Income Tax Act, 1961 and thereby modernise the taxation regime would get implemented from April 1, 2012. “The proposed Direct Taxes Code brings together the policy initiatives on direct taxes. It is slated to come into force from the next financial year,” he said.
The reform measures, he said, were aimed at rationalisation of tax rates, broadening of the tax base, focusing on sunrise areas like transfer pricing and international taxation, and strengthening of the tax information exchange network.
Considering the deadlock with States over the proposed indirect tax reforms by way of ushering in a unified Goods and Services Tax (GST), the Finance Minister chose not to mention a specific date of implementation. “We are moving toward an economy-wide, generalised value-added tax system of Goods and Service Taxes (GST) at all levels in the country,” Mr. Mukherjee said.