Thursday, 7 April 2016

Short-Circuiting of Round-Tripping !

What is Round Tripping ?

Black Money sent to tax havens ( eg: Panama ) for laundering and which returns to the country of origin as White Money , in the form of investments

What is the Global Amount  ?

Approx $ 23 Trillion ( China's GDP is about $ 17 Trillion )

What is the mechanism ?

In India , it is LRS ( Liberalized Remittance Scheme ), under which any Indian ( including minors ! ) can remit abroad officially / legally , EVERY YEAR , $ 250,000 for any of the following reasons (and without prior RBI permission ! ) :

*  Under Current Account

   #  Medical Treatment
   #   Education

*  Under Capital Account

   #  Buying Property overseas
   #  Holding shares in an overseas company
   #  Combination of these two

What is the safeguard  ?

Details of foreign assets have to be declared in the Income Tax Returns

How black money gets sent to tax havens ?

Some amount by Hawala route but most by legitimate banking channels !
You don't see plane-loads of cash landing in Panama !

Does that mean Indian Banks are party to these ?

Without doubt ! They will advise you how to do this ! Of course, legally !

If these remittances are legal, will 500 Indians get jail ?

Forget it !

Most legal experts say , they will be let off with some fines , if they have failed to declare these assets in IT returns

Are laws designed so as to prevent Round Tripping ?

Far from that ! Here is what President Obama said yesterday :

" There is no doubt that the problem of global tax avoidance generally is a huge problem

The problem is that a lot of this stuff is legal , not illegal

We shouldn't make it legal to engage in transactions just to avoid taxes

A lot of these loopholes come at the expense of middle class families

Alternatively , it means that we are not investing as much as we should in schools , in making college more affordable, in putting people back to work rebuilding roads, our bridges, our infrastructure , creating more opportunities for our children  "

What  is  the  best  SOLUTION ?

*  Make it unnecessary for our Black Money to first travel abroad ( to tax havens ) , before returning ( as White Money ) and getting invested in capital market

*  Short-circuit the Round Trip by enabling our Black Money to become White Money , HERE  itself ( no need for help from Mossack Fonseca ! )

*  As suggested in my recent blog ( Make India a Tax Haven ? ), abolish Personal Income Tax ( remove incentive for tax evasion )

*  Enable direct investment of " Black-turned-White " money into government approved INFRASTRUCTURE BONDS , thru creation of designated bank accounts where Black Money can be deposited , without any questions asked

*  Obviously , interest / dividend earned from such investments will be tax
free , being Personal Income  !

Is this a practical solution ?

Not if you ask the Economists / Bankers etc

Just ask the man on the street  !

This is too serious matter to be left to the Experts !

Will such a bill pass the legislative muster ?

Rahul Gandhi promised to pass the GST bill in 15 minutes if amendments proposed by Congress get incorporated

" Short-circuiting of Round-Tripping Bill " will get passed in 5 minutes - and unanimously too !  You know why !

--------------------------------------------------------------------------------- / blogs

08  April  2016


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