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India-Singapore tax treaty amended, ‘reasonable burial’ to black money route, says Jaitley

India will start imposing capital gains tax on investments coming from Singapore from April and fully withdraw exemptions in two years as the two countries agreed to amend a decade-old treaty after New Delhi rolled back similar concessions to Mauritius and Cyprus earlier this year.

With the amendments, announced by Finance Minister Arun Jaitley on Friday, investors based in Singapore will no longer benefit from tax exemptions on capital gains taxes.

Finance Minister Arun Jaitley. Reuters file photoFinance Minister Arun Jaitley. Reuters file photo

Finance Minister Arun Jaitley. Reuters file photo

Changes to the treaty with the Asian financial centre had been widely expected after India this year similarly re-drafted a 33-year old tax treaty with Mauritius. The tax treaty between India and Singapore had a provision that any changes in the Mauritius treaty would automatically apply to the one with the Asian country.

The move to tighten tax treaties is part of Prime Minister Narendra Modi‘s anti-corruption drive, which includes tightening loopholes for firms or rich individuals setting up a presence in jurisdictions with tax exemption treaties.

Regulators have long suspected rich Indians were routing cash through these tax jurisdictions, and channeling money back to India in a practice known as “round tripping”.

“We are able to give a reasonable burial to this black money route,” Jaitley told reporters at a news briefing. Capital gains tax will be imposed on investments from Singapore that are made from April onwards. The tax rate will be half the prevailing Indian rate for the next two years and rates will then be equated by April 2019. Jaitley said.

Singapore has been an increasingly popular source of foreign investment into India.Foreign direct investment flows from Singapore stood at $50.6 billion between April 2000 and Sept 2016, contributing more than 16 percent to total capital inflows during that period, second only to Mauritius.

According to Abhishek Goenka, partner, direct tax, PwC India, the renegotiation of the tax treaty with Singapore marks the culmination of a long process of renegotiation of the three key treaties that India had which provided exemptions from capital gains tax, ie, Mauritius, Cyprus and Singapore. Due to this the final outcome with regards to the Singapore treaty is not a surprise and most investors were expecting that it would mirror the new Mauritius treaty, which is what it is as far as capital gains is concerned.

However, he said the press release lacks clarity on some of the key provisions.

“It remains to be seen whether the existing limitation of benefits clause will continue to apply for the 2 year phase out period, or whether there will be a somewhat diluted requirement. The press release does not have details on whether there is also a reduction in the rate of withholding tax on interest to 7.5% as in the case of Mauritius. This will be a critical aspect before there can be complete parity between the two treaties,” Goenka said.

With Reuters

First Published On : Dec 31, 2016 10:15 IST

As cashless shift makes tax evasion tough, resentment becomes obvious

Evading tax is intrinsic to us and we do it with an uncanny ease. And the fact that cashless transactions are spoiling the victory dance of stealing tax is making us even more resentful to the demonetisation process.

Let’s accept this; Narendra Modi government has been completely unfair in compelling us to change this habit.

Consider this: On a regular day a person visits a furniture shop in Jangpura-Bhogal in New Delhi. He selects furniture worth Rs 20,000 and offers to pay through his debit card. The shopkeeper conveniently informs the buyer that he needs to pay the amount at a nearby chemist shop. Reason: If the furniture shop owner takes the amount in his name extra 12.5 tax would be added to the bill and this “would make the purchase unnecessary costly for both; the customer and the buyer”.

A shop assistant uses an eftpos system at a Specialty Fashion Group owned Katies store in Sydney December 11, 2012. Australia is being invaded by a swathe of foreign retailers, piling pressure on a local industry already battered by weak consumer spending and ruthless internet competition. Picture taken December 11, 2012. REUTERS/Tim Wimborne (AUSTRALIA - Tags: BUSINESS FASHION) - RTR3BNKDA shop assistant uses an eftpos system at a Specialty Fashion Group owned Katies store in Sydney December 11, 2012. Australia is being invaded by a swathe of foreign retailers, piling pressure on a local industry already battered by weak consumer spending and ruthless internet competition. Picture taken December 11, 2012. REUTERS/Tim Wimborne (AUSTRALIA - Tags: BUSINESS FASHION) - RTR3BNKD


The buyer trying to be a law-abiding citizen, offers to pay the tax but the shopkeeper declines to accept the deal.”Either cash or payment at the chemist shop”, he puts forward conditions of selling his goods in categorical terms.

Visit to other markets in the city confirms the same pattern. Jugaad transaction is thriving and tax is being evaded. Let’s accept it again we are essentially compulsive tax evaders.

Demonetisation leading to cashless economy might help in curbing tax-evasion and that is precisely why the ‘great Indian middle class’ is resenting the demonetisation so much.

Post-demonetisation announcement on 8 November, reports started emerging about shops selling gold jewellery in the national capital, indulging in massive tax evasion by accepting demonetised currency notes.

Experts have stressed for long time that cashless economy will help the income-tax (I-T) department audit various transactions more accurately and help check the parallel economy. Also, it will help in curbing tax evasion and increase the taxpayers’ base.

Cash transactions have always facilitated the tax evasion. According to report published in the Mint a “significant number of transactions used to evade taxes by trading in penny stocks were cash deals”.

According the report an investigation by the tax department last year “uncovered a trail of Rs 38,000 crore involving manipulation in 84 BSE-listed penny stocks and through 5,000 listed and unlisted firms, many of them shell companies. The taxman’s report said at least 64,811 entities evaded taxes through such fraudulent methods”.

Ashutosh Dikshit formerly, joint secretary, ministry of finance, Government of India in an article published in the Financial Express, writes, “Tax evasion due to the prevalence of the informal sector starts with suppression of turnover to evade value-added tax and service tax by small and medium businesses and professionals which automatically results in under-reporting of incomes for income tax. The informal sector also absorbs capital from gains made through corruption and violation of regulatory acts which therefore cannot be reported as taxable income”.

He adds, “The systemic solutions to this are the rapid introduction of digital, mobile-based payment systems to replace cash transactions, a stringent reporting and penalty mechanism for benami transactions and assets (which has been pending for long) and the introduction of the nation-wide invoice based GST which is substantially self-regulating as a business needs a tax-paid invoice to claim credit against its own GST liability”.

According to an IANS report published on Firstpost, under Income Declaration Scheme (IDS) announced by Modi government this year, Rs 67,382 crore was received from 71,726 declarants excluding two high-value disclosures”.

The report stated that, “The Income Tax Department did not take into consideration the Rs 13,860 crore declarations made by Ahemdabad-based Maheshkumar Champaklal Shah, which was reported prominently, as well as another made from Mumbai”. This makes the extent of tax evasion clear.

An Indian Express report published recently talking about how cashless transaction can help in curbing tax evasion writes, “A move to digital payments would, indeed, make transactions more transparent and trackable by the taxman and to that extent, tax evasion more difficult. (It is important to keep the distinction between corruption and tax-evasion, though. In the popular mind, these two are synonymous, but as we have seen, they NEED NOT BE. There can be mammoth corruption that involves no tax evasion, and there can be plain vanilla tax evasion that involves no other corrupt deed than the evasion itself)”.

Hindustan Times in an article published last year states that cash deals keep India’s parallel economy afloat and the ultimate loser is the government.

“Nearly two-thirds of India’s GDP, ($1.4 trillion or Rs 90 lakh crore), is a cash economy where buying goods, paying for services, or paying wages are all in cash. And while some of this is legitimate tax-paid money, quite a bit of it is not. Just how big is India’s black money economy? In 2011, three government think tanks were asked to estimate that. Their final report remains unpublished. But other, unauthorised estimates peg it at 25-30% of GDP or $600 billion annually”, states the report.

It adds, “The real loser is, of course, the government: it is deprived of an estimated $200 billion (or Rs 13 lakh crore) in yearly tax revenues because of black money. Consider this: India’s revenue, including indirect and direct taxes, is currently around Rs 9.1 lakh crore; if the black money that is swirling in the economy is reined in and accounted for, then (albeit theoretically) the government could declare a tax-free year!.”

In this context as cashless transactions are making tax evasion difficult, resentment becomes obvious.

First Published On : Dec 26, 2016 17:28 IST

Demonetisation: News18 sting operation reveals how black money helps hire Pakistani artistes

Central government’s decision to demonetise Rs 500 and Rs 1,000 notes is being projected as a huge blow to the hoarders of unaccounted cash worth crores and has posed a major challenge to those clandestine cash deals which was carried out to evade tax.

A sting operation carried out by the investigation team of News18 India on the managers of some very well known Pakistani artistes shows how black money is used to crack deals with these artistes.

News18 India conducted sting operations on the managers of Pakistani singer Shafqat Amanat Ali Khan and Rahat Fateh Ali Khan, Pakistani model Mawra Hocane and actor Fawad Khan.


Posing as a manager of a Delhi-based industrialist, the reporters of News18 India approached managers of above mentioned Pakistani celebrities with a proposal to perform at the wedding function of the industrialist’s daughter.

In the first case, the reporters of News18 India approached the manager of Shafqat Amanat Ali Khan with a proposal. Shafqat Amanat Ali Khan is famous Pakistani singer, has sung more than 50 Bollywood songs, and has performed in numerous concerts and live performances in India.

A team of undercover reporters of News18 India met Shafqat Amanat Ali Khan’s manager named Manu Kohli who runs an artiste management company in upscale Hauz Khas area in New Delhi. It is Kohli who manages all the performances of Khan in India.

The reporters told Kohli that they have come with a proposal for Shafqat Amanat Ali Khan to perform at a wedding hosted by Agrawal, a Delhi-based industrialist.

Kohli informed the reporters that Shafqat Amanat Ali Khan would charge Rs 25 lakh for the performance excluding other expenses incurred on travel and boarding of his entourage that consists of eight people. He also informed that apart from this there will be additional service tax that needs to be paid.

Further Rakesh Gupta, partner of Kohli told the reporters that they will provide all the invoices and will properly pay the service tax. Gupta said, “There will be no hanky panky. Everything will be clean. If you want to pay by cheque, draft or through real-time gross settlement systems (RTGS).

The conversation made by Gupta hinted at a fair dealing. But the perception was to be soon dismantled.

The reporters after a while asked Kohli and Gupta if it will be possible that on papers the payment can be shown for Rs 5 to 7 lakhs and rest can be paid in cash. After some negotiation, it was agreed that that Rs 10 lakh will be paid legally with proper documents and the rest Rs 15 lakh will be paid in cash.

When asked whether they should first be given the cash or the amount that will be shown as the fees, Gupta settled for taking cash first, to confirm the date.

A similar deal was struck with the manager of Rahat Fateh Ali Khan wherein out of Rs 65 lakh (the total amount to be paid to Rahat Fateh Ali Khan for his performance) Rs 23 lakh was to be paid legally by paying proper tax and the rest would be paid in cash.

After striking the deal with the managers of the two singers it was the time to test the waters with Pakistani heartthrob Fawad Khan.

The reporters posing as managers of Agrawal, a Delhi-based owner of a pharmaceutical company approached the manager of Fawad Khan with a proposal of Khan performing at the wedding function of Agrawal’s daughter.

The script was same and followed the same dialogue pattern. Here’s how it went (edited excerpts):

Reporter: You must have heard about our company. It is into medical products. Mr Agrawal is the owner. It is his daughter’s wedding; it is the first big function in the house. Money is not the problem. His daughter and son-in-law are very excited that some celebrity should participate in the function.

Fawad’s Manager: So you want him basically for the sangeet.

Reporter: Actually there are five functions. Dates for four have been finalised which I have already told you. One is yet to be finalised. Will let you know. They want different celebrities for each occasion; at least for one, they want Fawad Khan. His daughter is a big fan of Fawad.

Fawad’s Manager: Is it in Delhi?

Reporter: Yes!

Fawad’s Manager: Little difficult.

Fawad’s Manager: The issue is of him coming to Delhi. I do not think it is possible as of now.

Reporter: Why?

Fawad’s Manager: You have not heard of India-Pakistan issue

Reporter: That is in Mumbai. There is no problem in Delhi.

Fawad’s Manager: I do not think it will work out. But I will check.

Reporter: We have one function in Gurgaon also.

Fawad’s Manager: That is Delhi only.

Reporter: Yes, it is Delhi only. But Gurgaon is very safe. Delhi is also safe. It will be a private function. There will be no big crowd.

Fawad’s Manager: I will check once.

Reporter: Can you please tell me an estimate?

Fawad’s Manager: I will tell you the estimate.

Reporter: Please tell me how we shall make payment. With all white money, it will be very problematic, assuming if it is Rs 60-70 lakh.

Fawad’s Manager: It is for one person.

Reporter: If it is for one person, so, for a 70-plus group I assume it will be around Rs 70-80 lakh. Giving all in white will be a problem for me.

Fawad’s Manager: The group will go in CR.

Reporter: Whatever it may be. Giving all in white will be a problem.

Fawad’s Manager: We can decide in a percentage. What should I give you as of now? I will give you the original cost then we do not take anything in writing. You can tell about percentage on phone. You just need to tell percentage. I will calculate the amount.

Reporter: I feel if we do not talk these things on the phone it will be better

Fawad’s Manager: OK, if you say 25 percent, I can take in which ways, advance or anything. I can calculate 25 percent out of total percentage and I know this much you want to go in black and rest in white. Then we can decide.

What the conversation simply meant was that 25 percent of the amount that was to be paid to Fawad Khan would be paid in black. Further, Fawad Kahn’s manager told the reporters that by depositing the money directly into Khan’s UAE account they can save a lot on taxes.

Post demonetisation, the effect of the move on black money is being debated upon and this sting operation carried by News18 India highlights the extent to which black money is circulated in the system.

First Published On : Nov 15, 2016 21:07 IST

What the income tax data show: We, the citizens, are the biggest black money holders and we should be ashamed of fooling the state

The Government data on the income tax payments, released last week, throws light on one of the key problems India faces as it strives to build a social security net, public infrastructure and also to lift its citizens from the grip of poverty—painfully low number of income taxpayers, or, in other words, serious level of domestic tax evasion.

Tax-Day_380Tax-Day_380The government has made public the income tax data for last 16 years. If one looks at the 2014-15 number, just about 4.8 crore people filed tax returns, making it less than 4 per cent of the population (considering population at 125 crore). In the years before that, the number of those filed tax returns is even less, in 2012-13, the figure close to only about 1 percent of the population that time. To be sure, the number of those who filed returns does not indicate the actual taxpayers, since many of them would be below the threshold.

What these figures effectively telling us is that the domestic tax evasion is even a bigger concern for India to handle even before chasing the black money stashed abroad. It doesn’t make sense for any government to chase a magic treasure hidden somewhere in foreign lands when there is massive tax evasion right under its nose. The data is the testimony of India’s failure to broaden the tax net despite more than two decades after initiating economic reforms.

There is a clear case here that those liable to pay taxes aren’t doing so. For instance, according to this Mint column, barely less than 10 lakhs people admitted to have annual income more than Rs10 lakhs—clearly an absurd number. This spells out the biggest task Modi-government faces in the current times—take steps to broaden the tax net rather than merely increasing the tax rates.

Because, every time the government hikes the income tax rates but doesn’t bother to broaden the tax base, the burden falls on the chosen few, which is clearly unfair for any government to do. This can be done only by a mix of efforts including bringing awareness and, in the second step, monitoring compliance at state-level. According to the published data, just two states, Maharashtra and Delhi, contributes more than half of India’s income tax payments, followed by Karnataka, Tamil Nadu and Gujarat.

The very low levels of tax compliance should worry any government since there is no ‘akshayapatra’ for it to provide for social infrastructure, social security and shouldering the responsibility of weaker sections in the society but the tax paid by its citizens and revenues mobilized from state-resources. While the proposed Goods and Services Tax (GST) will largely take care of the task of broadening the tax base on the sales of goods and services, increasing compliance on the income tax front, has always been challenge.

The government has been taking measures to address this issue by ways of tax deducing at source, offering rebate to taxpayers seeking tax exemption rather than exemption itself, using its analytics to identify taxpayers and making PAN number mandatory, said Alok Agarwal, senior director, tax practice at Deloitte. “Also, the government has realized that income tax cannot be solely relied upon income tax. The increase shown in the sales tax revenue is a proof of this,” Agarwal said. But, despite the efforts, the progress has been slow as the numbers show.

To put it in simple words, India still has several citizens who go out any buy expensive cars and jewellery but not willing to pay the taxes to government. The sad part is that no one, who seek more government-sponsored free-services, subsidies and national security from foreign elements, do not spare time to think of how will the government resources will be mobilized for all these.

We are all more than aware about the rights on what is due to us as the privileged citizens of this country but conveniently forget what we owe to the country. The fact is that all of use are too used to the freebies. It would be ideal if the awareness should come from the citizens rather than imposed by the state–particularly in a scenario, when the state exchequer lacks resources and is, painfully, in deficit mode.

(Data Support form Kishor Kadam)

Notice will be served against those named in Panama Papers, says Jaitley

New Delhi: The government is taking all necessary steps on the issue of tax evasion and notice is being served on those whose names figure in the Panama Papers leaks, Finance Minister Arun Jaitley said in the Lok Sabha on 29 April.

The statement during question hour when members, including Nana Patole and Kirit Somiaya (both Bharatiya Janata Party) and B. Mahtab (Biju Janata Dal) asked supplementaries on the tax evasion issue.

Jaitley, however, said any individual case could not be discussed in the house. He assured that the government is taking action and has already served notice on some named in the Panama Papers leaks on tax evasion and of stashing money overseas.

File photo. PTIFile photo. PTI

File photo. PTI

Minister of State for Finance Jayant Sinha said the appointment of a Special Investigation Team (SIT) by the National Democratic Alliance (NDA) government in 2014 had helped in the purpose of tracking black money both in the country and outside.

“SIT is doing a commendable job,” Sinha said, adding that recommendations of the SIT had helped investigating agencies and the government, especially with regard to black money stashed overseas.

“And for domestic black money also the SIT recommendations have been found helpful and necessary steps are being taken,” he said.

Biju Janata Dal floor leader B. Mahtab wanted to know if in the wake of reports from SIT and other agencies the government is proposing any changes in the law to keep an eye on tax evaders.

BJP member Kirit Somaiya was pulled up by Speaker Sumitra Mahajan when he took the name of a popular Maharashtra leader, who is now in jail.

“You know everything, then why are you taking someone’s name,” Mahajan told the ruling party member tersely.

Minister of State Finance Sinha agreed that there are instances of tax evasion by moneyed people when they show their income as agricultural income.

BJP member Nana Patole said the contention that agricultural income is growing cannot be true because, “If such is the case, then farmers would not be committing suicide”.

Sinha said there has been an increase of tax payers’ network to 5.8 crore ever since the NDA government took over.

“We should not analyse this number based on the country’s total population. It is only among the 25 crore households and chiefly from seven crore eligible tax payers in the urban pockets,” Sinha said.