A. J.P.C. on tax havens

The Indian Premier League (IPL) did not start with Sunanda Pushkar. It has been around for more than three years. The relationship between IPL franchises and tax havens is not something new. But the investigative hounds were unleashed after the exit of minister of state for external affairs Shashi Tharoor.

Initial findings by the finance ministry’s department of revenue — which has the income tax wing and the enforcement directorate under it — suggests that many IPL franchises had routed their money through tax havens.

The World Sports Group (WSG) has reportedly told officials that Multi Screen Media (MSM) did pay $80 million as “facilitation fees” for the IPL’s telecast rights. The money was apparently transferred to the Virgin Islands. The structure of the Jaipur franchise is intriguing. JIPL is a 100% owned subsidiary of EM Sporting Holdings Ltd, Mauritius, which has made investments in JIPL.

The Mauritius holding company is again a joint venture between: Tresco International Ltd, registered in the British Virgin Islands; Emerging Media (IPL) Ltd, UK; Blue Water Estate Ltd, Hong Kong; and Kuki Investments Ltd, the Bahamas. These centres are among the tax havens under the scrutiny of the Indian government.

A detailed report in DNA (April 24, 2010) suggests that 18 benami firms may own stakes in IPL and most of it from tax havens like the Virgin Islands, Cyprus and Mauritius.

The information is not surprising given the promiscuous attitude of our elite towards illegal funds and the laxity of our own rulers. We can consider some recent events.

The ministry of finance, in an affidavit filed before the Supreme Court (SC) in the case of Ram Jethmalani versus Union of India (on black money in tax havens; May 2009) says that the tax demand on one Hassan Ali of Pune is Rs71,849.59 crore. It also says that he and his wife were operating accounts with UBS of Switzerland. It is interesting to note that Hassan Ali Khan is out on bail in a fake passport case.

But disclosing the list of defaulters in the Rajya Sabha on August 4, 2009, minister of state for finance SS Palanimanickam said in a written reply that Khan topped the list of tax defaulters with outstanding arrears of more than Rs50,000 crore.

But wait — more curious things happen! As per budget 2010-11, the income tax due from individuals (both disputed and undisputed) is a much low sum of Rs49,176 crore. (Annexure10: Tax revenue raised but not realised — under Rule 6 of the FRBM Rules 2004).

Obviously, someone in the finance ministry has missed out on Khan and his associate. The finance minister seems to categorically assert (interview in The Week, March 14, 2010) that the government has recovered its tax dues from Khan.

Unfortunately, this cannot be true, as the revised estimates for 2009-10 do not reflect the same. Rs50,000 crore or Rs70,000 crore is too large a sum to be lost even in the government of India’s budget.

In 2009, there was a list made available by the German finance ministry regarding Indians holding illegal funds in a Liechtenstein bank. Unfortunately, the public do not know the status of that enquiry. There were reports that 38 out of 135 foreign venture capital investors registered with Sebi are Mauritius-based, having the same address, phone and fax numbers; these were not fully in compliance with Sebi’s norms of scrutiny.

When the former chief minister of Jharkhand, Madhu Koda, was investigated by the enforcement directorate, it was reported that funds in various tax havens were partly used to buy mines in Liberia. In the case of the spectrum scandal, it was reported that the companies were fronted by other groups registered in tax havens.

The president in her joint address to Parliament in February stated that her government will initiate action to get back money stashed abroad. Prime minister Manmohan Singh said in the Lok Sabha (March 5, 2010) that India will take every possible measure to ensure the return of ill-gotten money stashed in tax havens abroad. The finance minister, taking a tough stand on various tax havens, said at a seminar on transfer pricing that tax havens not only eroded a country’s revenue, but were also a cause of concern from a national security point of view.

So the time has come for the government to constitute a joint parliamentary committee on tax havens. The home minister is the appropriate person to take the initiative in this issue. He will understand that while the Maoists are working to destroy our republic from below, the tax havens are destroying our republic from above.


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