Thursday, May 06, 2010

prof vaidya: A JPC FOR TAX HAVENS

may 5th, 2010

---------- Forwarded message ----------
From: Vaidyanathan R

http://www.dnaindia.com/opinion/main-article_a-jpc-on-tax-havens_1375900


A JPC on tax havens

R Vaidyanathan

Monday, April 26, 2010 22:15 IST

The Indian Premier League (IPL) did not start with Sunanda Pushkar. It has
been around for more than three years. The relationship between IPL
franchises and tax havens is not something new. But the investigative hounds
were unleashed after the exit of minister of state for external affairs
Shashi Tharoor.

Initial findings by the finance ministry's department of revenue — which has
the income tax wing and the enforcement directorate under it — suggests that
many IPL franchises had routed their money through tax havens.

The World Sports Group (WSG) has reportedly told officials that Multi Screen
Media (MSM) did pay $80 million as "facilitation fees" for the IPL's
telecast rights. The money was apparently transferred to the Virgin Islands.
The structure of the Jaipur franchise is intriguing. JIPL is a 100% owned
subsidiary of EM Sporting Holdings Ltd, Mauritius, which has made
investments in JIPL.

The Mauritius holding company is again a joint venture between: Tresco
International Ltd, registered in the British Virgin Islands; Emerging Media
(IPL) Ltd, UK; Blue Water Estate Ltd, Hong Kong; and Kuki Investments Ltd,
the Bahamas. These centres are among the tax havens under the scrutiny of
the Indian government.

A detailed report in *DNA* (April 24, 2010) suggests that 18 benami firms
may own stakes in IPL and most of it from tax havens like the Virgin
Islands, Cyprus and Mauritius.

The information is not surprising given the promiscuous attitude of our
elite towards illegal funds and the laxity of our own rulers. We can
consider some recent events.

The ministry of finance, in an affidavit filed before the Supreme Court (SC)
in the case of Ram Jethmalani versus Union of India (on black money in tax
havens; May 2009) says that the tax demand on one Hassan Ali of Pune is
Rs71,849.59 crore. It also says that he and his wife were operating accounts
with UBS of Switzerland. It is interesting to note that Hassan Ali Khan is
out on bail in a fake passport case.

But disclosing the list of defaulters in the Rajya Sabha on August 4, 2009,
minister of state for finance SS Palanimanickam said in a written reply that
Khan topped the list of tax defaulters with outstanding arrears of more than
Rs50,000 crore.

But wait — more curious things happen! As per budget 2010-11, the income tax
due from individuals (both disputed and undisputed) is a much low sum of
Rs49,176 crore. (Annexure10: Tax revenue raised but not realised — under
Rule 6 of the FRBM Rules 2004).

Obviously, someone in the finance ministry has missed out on Khan and his
associate. The finance minister seems to categorically assert (interview in
The Week, March 14, 2010) that the government has recovered its tax dues
from Khan.

Unfortunately, this cannot be true, as the revised estimates for 2009-10 do
not reflect the same. Rs50,000 crore or Rs70,000 crore is too large a sum to
be lost even in the government of India's budget.

In 2009, there was a list made available by the German finance ministry
regarding Indians holding illegal funds in a Liechtenstein bank.
Unfortunately, the public do not know the status of that enquiry. There were
reports that 38 out of 135 foreign venture capital investors registered with
Sebi are Mauritius-based, having the same address, phone and fax numbers;
these were not fully in compliance with Sebi's norms of scrutiny.

When the former chief minister of Jharkhand, Madhu Koda, was investigated by
the enforcement directorate, it was reported that funds in various tax
havens were partly used to buy mines in Liberia. In the case of the spectrum
scandal, it was reported that the companies were fronted by other groups
registered in tax havens.

The president in her joint address to Parliament in February stated that her
government will initiate action to get back money stashed abroad. Prime
minister Manmohan Singh said in the Lok Sabha (March 5, 2010) that India
will take every possible measure to ensure the return of ill-gotten money
stashed in tax havens abroad. The finance minister, taking a tough stand on
various tax havens, said at a seminar on transfer pricing that tax havens
not only eroded a country's revenue, but were also a cause of concern from a
national security point of view.

So the time has come for the government to constitute a joint parliamentary
committee on tax havens. The home minister is the appropriate person to take
the initiative in this issue. He will understand that while the Maoists are
working to destroy our republic from below, the tax havens are destroying
our republic from above.

____________________________________________________________________________

R.VAIDYANATHAN

PROFESSOR OF FINANCE

INDIAN INSTITUTE OF MANAGEMENT

BANNERGHATTA ROAD

BANGALORE

INDIA_560076

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