Lacking political will

Within days of the announcement of the signing of a protocol between India and Switzerland which will help the country secure information on the money hidden by Indians in Swiss banks, it has been revealed that over Rs 5 lakh crore of tainted money has been transferred illegally out of the country in the last eight years. All this may not have ended up in Swiss banks but it is more than possible that a substantial part of it must have found its way there. Conservative estimates have put the total illegal holdings of Indians in these accounts at over Rs 50 lakh crore. The damage done to the national economy by such unaccounted money is well-known and retrieval of at least a part of this would have done wonders by wiping out the fiscal deficit. But there has not been a single case of retrieval of money while the outgo has been continuing and even increasing in the last few years.

The reworking of the bilateral taxation treaty is a small step forward towards unlocking the secrecy of the Swiss banks but its utility is limited insofar it is applicable only to prospective information. There are also other stringent conditions. Only tax-related requests will fall under the purview of the agreement and specific requests based on information about tax evasion will have to be provided to the Swiss authorities. The account-holder will also have the right to appeal against a decision to transfer data. All this makes the procurement of information and retrieval of illegal funds extremely difficult but a legal route with a possibility of success has opened up now where there was none in the past.

There is a new international climate of opinion that favours action against tax evasion and financial wrongdoing. The G-20 group and the Organisation for Economic Co-operation and Development (OECD) have been putting pressure on governments in tax havens. India has complied with global tax standards and OECD has recognised this. This should have helped the country to strike a better deal with Switzerland which could also cover past  transactions of Indians in Swiss banks. It is an open question whether there was enough will and readiness on the part of the government to pursue hard negotiations on the matter, because the results would be unpleasant for much of the political and business leadership in the country.

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