IRS officials in Singapore to track dodgy funds

December 20, 2009
Singapore Democrats

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M Padmakshan
The Economic Times

The government has, in an unprecedented move, posted two senior Indian Revenue Service (IRS) officers to Singapore and Mauritius, intensifying its efforts to crack down on money laundering amid growing concerns of links between tax evasion and terror funding.

The Central Board of Direct Taxes (CBDT) has appointed additional commissioners GT Venkateswara Rao and M Sampath as first secretaries at the country’s missions in Singapore and Port Louis for three years, official papers show. These two island nations account for much of fund flows into India.

India and many other countries, including the US, are battling illegal money transfers and tax evasion, some of which are even allegedly used to fund terror activities. Although most of these funds belong to wealthy businessmen who want to avoid taxes, sophisticated terrorist organisations have found ways of money transfer in global markets to fund their activities. In the past, the national security advisor, MK Narayanan, had said terror funds have found their way to Indian stock markets.

“Officers are deputed to the Indian missions abroad to maintain effective co-ordination between the Indian tax authorities and the tax authorities of Singapore and Mauritius,” the order said.

Black money stashed away by Indian businessmen became a hot topic before the last general elections, with BJP alleging that nearly Rs 70 lakh crore have been stashed abroad. A public interest litigation was also filed in the SC by lawyer Ram Jethmalani on the issue. Recently, the Enforcement Directorate has charged former Jharkhand chief minister Madhu Koda in a scandal that runs into more than Rs 5,000 crore.

This may also help the government ignore calls to ban participatory notes (PNs) through which some overseas investors buy Indian stocks without registering with the stock market regulator, Sebi. Some experts even allege that these PNs may be used by those with ill-gotten wealth and also by terror organisations. PNs, which account for about 17% of the $15-billion fund inflow into Indian stocks this year, are derivative instruments sold by registered brokers here to investors overseas with Indian stocks as base.

The largest fund flow into India, at least for the past 10 years, has been from Mauritius, largely on account of the India-Mauritius tax treaty, which provides for exemptions from capital gains tax to Mauritius-based entities operating in India.

Fund flows through Mauritius is estimated to have been about $39 billion between April 2000 and May 2009, followed by Singapore with more than $8 billion.

The Indian government is also renegotiating tax treaties with many countries, such as Switzerland and Mauritius, to ensure that these are not misused. Tax haven Liechtenstein has already provided information on about 50 Indians who had illegal accounts there.

This is the first time IRS officials are posted permanently to check on transactions involving entities in India. The Central Board of Excise & Customs (CBEC) has officials permanently posted in Washington and Singapore for the same purpose. The Enforcement Directorate, too, has an official posted in Dubai to check on transactions that can have Indian connections.

“Having people who know Indian income-tax rules posted permanently abroad will help speed up the process of securing information on suspicious transactions,” said one senior income-tax official, who did not want to be identified. “Currently, getting information is a time-consuming process which involves intervention of foreign ministry, letter rogatories and other legal formalities.”

Mauritius was, till recently, listed as a tax haven by the Organisation for Economic Co-operation and Development (OECD). After Mauritius implemented transparency regulations prescribed by OECD, Mauritius entered the OECD’s so-called White List for countries that successfully implemented its recommendations. Singapore also joined the OECD White List after implementing the same standards for transparency.

http://economictimes.indiatimes.com/news/economy/finance/IRS-officials-in-Singapore-Mauritius-to-track-dodgy-funds/articleshow/5353940.cms