Pandora Papers take the lid off India’s superrich
Satyajit Ray's 1976 film "Jana Aranya" is as much a socio-political commentary as it is about the dark underbelly of India's business world. Struggling to find a job, the film's protagonist chooses to be a businessman and gets sucked into the vortex of corporate crookedness. Ray himself had described this as his "darkest" film. But it is also one of his most realistic ones. Every time one comes across reports about corruption in the corporate world, one cannot help but return to "Jana Aranya." And so did I, after the Pandora Papers came to light.
Even before the churnings set off by the release of the Panama Papers five years ago could fully play out, the International Consortium of Investigative Journalists (ICIJ) has come up with a new damning exposé in the form of Pandora Papers. The documents released by the ICIJ named more than 300 Indian business honchos, entities, celebrities, politicians and those accused of economic offences and are under the radar of investigation agencies.
According to a report by the Indian Express, which was part of the international consortium of newspapers, there are at least 380 individuals and entities in the Pandora Papers, many of whom have set up trusts and other entities in tax havens. The setting up of these trusts and entities is allowed by India's domestic laws, but the question is whether the money parked in these vehicles is accounted for and tax-compliant.
According to the first instalment of revelations by the Indian Express, industrialist Anil Ambani has 18 asset holding offshore companies, despite declaring bankruptcy in a UK court; Indian biopharma company Biocon's promoter Kiran Mazumder Shaw's husband allegedly set up a trust with keys to a person banned by the Indian stock market regulator, Securities and Exchange Board of India (SEBI), for insider trading; fugitive billionaire diamond merchant Nirav Modi's sister set up a trust just a month before he fled the country; and cricket icon Sachin Tendulkar had asked for the liquidation of his offshore entity after the Panama papers' leak. More big names are coming out as the daily comes out with a series of revelations as part of the exposé every day.
The Indian Express report also said many individuals who owned offshore entities opted for a reorganisation of their foreign assets after the massive Panama Papers' leak in 2016—through new ways of avoiding tax and stashing unaccounted money abroad. This means, no lesson has been learnt from the Panama Papers exposé. All the people named above have also denied any wrongdoing.
Like in the case of the Panama Papers, the Indian government has promptly responded by ordering a probe into the cases related to the Pandora Papers by multiple government agencies, which deal with economic offences, money laundering, terror funding and round-tripping of investments from abroad after sending the money from home through a complex web of companies (some of which are shell firms). The government has decided to rope in the Central Board of Direct Taxes, Enforcement Directorate, Financial Intelligence Unit and Reserve Bank of India for conducting the probe. The Indian finance ministry said in a statement that around the time of the past exposés—like the Panama Papers and Paradise Papers—a new law called Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act in 2015 was enacted to curb black money transfer, under which "undisclosed credits of Rs 20,352 crore approximately (as of September 15 this year) have been detected in investigations carried out in the Panama and Paradise Papers." The Indian government had also formed a special investigation team on black money in 2014.
As the Pandora Papers show, one of the newest methods adopted by individuals and corporate entities to avoid taxation on their wealth and income in their home countries is to set up trusts in tax havens, where the tax rates are much lower compared to the 30 percent plus surcharges in India on those with an annual income of one crore rupees. A trust is a financial vehicle in which a third party holds assets on behalf of individuals or entities who benefit from incomes from financial investments, shares and real estate assets. Such trusts are, by and large, used for estate and succession purposes. Indian law allows offshore trusts. But the problem arises when these trusts are used by some people or entities to store their unaccounted money and other wealth to avoid the scrutiny of tax authorities, and to overcome legal action by creditors—whose funds have been used to generate the ill-gotten wealth—wanting to recover their dues.
Indian individuals are permitted to invest up to USD 25,000 per year under the Reserve Bank of India's Liberalised Remittance Scheme. In order to get around this ceiling, there has been a growing trend of some businesspersons acquiring Non-Resident Indian (NRI) status as India allows NRIs to send USD 1 million annually (apart from their current annual income) outside India. It is precisely for this reason that Indian income tax authorities have stepped up their scrutiny in some cases of these NRIs, primarily to check if they have disclosed their foreign assets at the time when they were Indian citizens. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act in 2015 does not require NRIs to report their financial incomes and immovable assets abroad.
The Pandora Papers' revelations, which bring out the challenge posed by the tax evaders, have come at a time when the world witnessed the biggest increase in extreme poverty and a widening gap between the rich and the poor, exacerbated by the Covid-19 pandemic. It is undeniable that tax evasion and black money are two of the major reasons for the socio-economic inequities in individual countries. The unpaid tax from the ill-gotten wealth could have been manoeuvred to a range of social welfare projects in health, education and infrastructure sectors of a country.
An estimate by the Indian chapter of Oxfam says: "Tax havens cost governments around the world USD 427 billion each year, and developing countries are being the hardest hit proportionately. Corporations and the wealthiest individuals that use tax havens are outcompeting those who don't." It calls for doing away with tax havens, arguing it can go a long way towards ensuring that governments access tax revenue needed to fund quality public expenditure.
Oxfam has also come out with a series of measures like setting up a public register on the real owners of bank accounts, trusts, shell companies and assets, asking multinational corporations to publicly report their accounts where they do business, country-by-country, increasing the use of automatic exchange, and allowing revenue authorities access to information they need to track the money.
But it goes without saying that any step taken to check black money would require a strong political will on the part of the government, because many of the people involved are influential and politically highly connected. It will also require a closer study of the grey areas of certain laws a government has enacted to attract foreign investment in order to plug possible loopholes that individuals and entities take advantage of to stash their assets in tax havens. While there should be no attempt to vilify or demonise the entire corporate sector (as long as they play by the rulebooks) for the acts of a section of it, it is time for errant business tycoons and entities to introspect if their actions cover them with any glory.
Otherwise, we may have to face the ending of "Jana Aranya"—which leaves viewers with a sense of pessimism and cynicism not only about the corporate world, but also about society as a whole.
Pallab Bhattacharya is a special correspondent for The Daily Star. He writes from New Delhi, India.