This US-led initiative has already garnered support from around 132 countries for a minimum tax rate of 15%. The first pillar will imply that even if the profits are recorded in a tax haven, as long as they are not hidden, the home country can legitimately tax them. For decades, big companies like Apple, Google, Amazon have registered the profits of their European and global revenues in the weak tax haven of Ireland. It will now end. Indeed, the European Union has fined Ireland for such irresponsible taxation, which amounts to “stealing taxes” from other jurisdictions.
In India too, a lot of rich people say that they have transferred their wealth to offshore trusts and that everything is legal. Perhaps they fear that the tax authorities will take away part of their wealth in the form of wealth tax? The sharply rising stock market and the mega injection of liquidity have dramatically increased wealth inequalities in India and around the world. Most developed countries have a high inheritance or inheritance tax. India does not. Is there a fear of the return of inheritance rights?
Leaving aside the fugitives who defrauded banks or who defaulted on large loans from public sector banks, another question to think about is that even though the wealth has been legally sold, does this reflect capital flight? Do high net worth individuals transfer large assets abroad? What is their anxiety? Do they think their wealth is not safe in India?
If India were to fully open its capital account, would there be a massive flight of capital? The Pandora Papers raise many questions that require serious soul-searching. However, we hope that, like the Panama and Paradise Papers, they will not make the headlines of the forgotten newspapers in a fortnight.
(Dr Ajit Ranade is Economist and Senior Researcher, Takshashila Institution) (Syndicate: The Billion Press)