B.N.Kumar

Slash taxes, encourage expenditure
Many Indians have forgotten the habit of spending on themselves, thanks to the tax burden at every step. We pay sales tax, local tax, municipal levies, VAT and what have you and yet pay income tax. We are forced to pay tax on income as well as expenditure! FM will do well if he addresses this issue.
Any increase in expenditure will lead to increased sales which in turn will result in increased production. This will have a positive cascading effect on jobs. Instead of retrenching, industry will look to increasing employment. It is high time that the government took a cue from the private sector and play the game of volumes.
Take the case of real estate industry which supports 250-plus industries. A profiling and labour intensive real estate sector will, thus, not only help people realise their dream homes, but help all the industries connected with it – from banks, cement, steel, electrical to transport at e very stage - survive and flourish.
The other budgetary steps could include: bringing down taxes on articles of common use and encouraging consumption, help salaried class with tax reliefs and prompt them to spend and encourage people also to save with incentives. Perhaps the popular savings instruments like Kisan VIkas Patra or Indira Vikas Patra that helped people double their income in five to six years.
Why should be the salaried class alone bear the brunt of taxes? The government could think of taxing the rich farmers depending their land holdings and income.
Finally, the government could consider innovative steps like declaring ‘Gandhi Saptah’ as a tax holiday week on certain items of common man’s interest like Roti-Kapda-Makaan and allow people to indulge a bit. The sad part of Gandhi Week is that it is associated with ‘Dry Days’ onll!
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Tax haven can turn into a hellThe so-called tax haven islands can be trouble spots for India Inc Parking money in tax havens abroad has become a status symbol of sorts for many Indian businessmen. In fact in India’s elite sector, the general perception is that tax havens are a good investment routing vehicle. It also adds a certain aura to cocktail conversations among the rich-and-the-famous social gatherings. One even gets the feeling of one’s chest soaring to the sky while talking about investments in these tax havens. The money parking places are usually small islands, countries, they might have very shaky – even shady - legal and judicial systems, which can derail the best of the investments. The ongoing controversy over Nigeria-settled NRI Raj Arjandas Bhojwani is a case in point. Bhojwani, who supplied Indian trucks to the Nigerian military, is now caught in an international legal controversy between Nigeria and Jersey over alleged money laundering charges for contracts of USD 183 million he signed with Nigeria in 1996. The money was deposited in Bank of India branch in Jersey where his trial started on January 26. Lawyers of Bhojwani in a letter to Prime Minister Manmohan Singh have alleged that Jersey is interested in making a case against Bhojawani, confiscate his assets and share them with Nigeria.Bhojwani’s family has been in Nigeria for close to five decades with business interests spanning across pharmaceutical, manufacturing, motor vehicle assembly, distribution and servicing, apart from two joint ventures with the Lagos State Government in public transportation. The group employs about 300 Nigerians. An executive director of Eko Transport Services Limited, a Nigerian company in a joint venture with the Lagos state government and another Indian firm, Bhojwani was arrested in February 2007 in Jersey but was released on bail for a staggering USD 64 million. One of the cases before the court is three counts of concealing or transferring some USD 44 million, alleged to be the proceeds of criminal conduct. The charge against him is that he moved funds for the purposes of avoiding a prosecution or confiscation order. His lawyers have alleged that he was charged under the Act which came into being two years after the alleged "predicate offences" took place.Thus, the small little tax haven has proved to be a virtual hell for Mr Bhojwani. The contrast here is that while the tax havens like Jersey rely heavily on revenues from investments from overseas, those who use the channels face deep trouble. Look at the cash stashed away in tax havens; those running the “faciliyties” can become greedy and vie for their own pie, as Bhojwani’s experience shows. According to the estimates of the Organisation for Economic Cooperation and Development (OECD), the value of assets held in tax havens is about $11.5 trillion. According to GFI, which is the first international organization to seriously study the flow of black money, or what it calls illicit money, from 2002 to 2006 India witnessed average illicit financial outflows from a low of US$22.7 billion to a high of US$27.3 billion per year. GFI ranked India fifth in the list of 160 developing countries suffering from the outflow of illicit money. In its report Illicit Financial Flows from Developing Countries, 2002-2006, GFI estimated that over 1 trillion dollars of illicit money moves out in a year across borders, with Asia accounting for 50 percent of that outflow. China with US$233-289 billion topped the list, followed by Saudi Arabia (US$54-55 billion), Mexico (US$41-46 billion) and Russia (US$32-38 billion). It is estimated that over one- third of the money stashed abroad has found its way to Swiss bank accounts while the rest is parked in the 70-odd tax haven countries with whom India has signed Double Taxation Avoidance Agreements.Consequent to the OECD’s drive against tax havens, many countries have started caving in to sign international standards on transparency and exchange of information. For instance, the Cayman Islands recently signed bilateral agreements with seven Nordic countries, which will allow it to unilaterally exchange information on tax matters. So, if Jersey succeeds in implicating people like Bhojwani, they could easily walk away with millions of dollars every year. Also, one never knows when the banking secrecy laws in the tax shelter change swiftly and the funds dry up even before the ink on the pay-in slip dries. Bhojwani alleges that he is being made a scapegoat by Jersey and his human rights are being violated. His lawyers also say this is a case of racial discrimination. All eyes are now on the MEA which has already been grappling with the racist attacks on Indian student community in Australia. The challenge for the economist-turned-politician Manmohan Singh-led government is manifold: to help bonafide NRI interests and come out with come out with laws and bilateral arrangements in tax matters.

B N Kumar, CEO,
Concept PR
mailbnk@gmail.com