Investigate is the Right Thing To Do
Panama leak shows need for global cooperation
So, some 500 Indians figure among a list of names contained in 11.5 million files leaked from Panama-based Mossack Fonseca, the world’s fourth-largest provider of offshore services ranging from registering companies in tax havens and running them on behalf of clients to wealth management. If files were to leak, additionally, from this firm’s larger competitors, probably we would have the names of a few thousand Indians who own companies in tax havens, along with similarly tax-averse members of the global elite. What does it add up to? The blinding insight that some Indians hold their wealth through offshore companies? How much of this is illegal is the question. It is welcome that the government has set up a multi-agency team to investigate the matter.
All foreign accounts and foreign-registered companies do not hold illicit money or business. Some of them are legitimate in both spirit and the letter of the law. But many offshore companies serve primarily to minimise the burden of taxation, mostly through legal measures devised by an expensive service called tax planning. The real challenge is threefold. One, to revamp the tax system to eliminate high, irrational tax rates that are an incentive to look for ways to avoid them. Two, harmonise tax practices, rates, policy and information exchange across countries, so that governments can collectively have a good idea of what their citizens earn and collect a reasonable share as tax. And, three, to create a Unique Legal Entity Identifier, so that the ultimate beneficial owner of any company becomes transparent. Britain, which figures disproportionately both as the nation of users of offshore services and as the nation that administers the maximum number of tax havens, will herald such transparency later this year.
It is a gain of globalisation that tax havens and discreet banks spring leaks and the resulting information gets spread across the globe. India needs to strengthen its ability to digest the data yielded by such increasingly frequent leaks and take appropriate action.