As countries all over the world join forces to eliminate schemes for tax evasion, those attempting to find a safe haven to avoid compliance laws are running out of options. World powers have made it apparent through pacts and alliances that they are no longer willing to tolerate individuals who seek to keep their income hidden by having an offshore account.
Additionally, this pressure has been felt not only by the individuals, but by the financial institutions and even countries that once upon a time might have aided this type of behavior. But as transparency becomes the name of the game, and the U.S. Foreign Account Tax Compliance Act inspires other countries to implement such standards of their own, the world of tax compliance is getting an overhaul.
India joining global forces
U.S.-led FATCA has made an impression in tax accountability all over the globe, and last year India was expected to join the agreement. However, as Business Standard noted, the country had to pull back at the last second amid confidentiality concerns and double tax avoidance agreements, which the Indian Supreme Court highlighted before any signings could take place.
“Tax evaders are running out of safe havens.”
It is now expected that India will sign onto FATCA by September of this year, as some details between the two countries still need to be worked out. However, just because India hasn’t signed on yet doesn’t mean they aren’t taking their own initiatives to join the fight against global tax evasion.
Earlier this month, India joined 60 countries in a platform called the Multilateral Competent Authority Agreement. This agreement allows for the automatic exchange of financial information after 2017. This exchange is known as common reporting standards, and ensures that countries like India, who have signed on to the agreement, can receive financial information from all other countries in addition to supplying it.
“Ninety-four countries have committed to exchange information on an automatic basis from 2017 onwards, according to the new global standards on automatic exchange of information, known as common reporting standards on automatic exchange of information (AEOI),” said the Indian government’s press statement, according to Business Standard. “This will help the government curb tax evasion and deal with the problem of black money.”
Progression toward FATCA
While India has experienced delays in the joining of FATCA, they are certainly taking strides to be a participating country of the act. In fact, it was only recently that the Indian Central Government Cabinet approved the signing of an Inter-Governmental Agreement with the U.S., which will then make the country an active player in FATCA’s reach.
As the deal nears reality, close to 680 Indian financial institutions have applied for a USA Global Intermediary Identification Number under the Act, Indo American News reported. This will open the line of communication between these financial institutions and the U.S. Internal Revenue Service, requiring these institutions to report accounts of U.S. citizens that exceed $50,000.
While this relationship will require extra compliance efforts, it will also introduce penalties for those institutions failing to report, or aiding in an evader’s attempts.
New measures would tax goods and services.
Indian economy swiftly growing
The timing of India’s efforts coincide with the fact that its economy is growing at a rapid rate. According to the Hindustan Times, the Indian economy is the world’s fastest growing major economy. Because of this, the country is making attempts to expand its internal tax regulations, such as introducing new measures to tax goods and services within the country.
A bill sent to the country’s congress would enable a goods and services tax, according to Business Standard. Further, it would make more room for voluntary compliance with tax law from its citizens. While congress is hesitant to push the move through, finance minister Arun Jaitley said these reforms would aid development and growth, and allow tax laws to keep up with the booming economy.
“New tax standard would make more room for voluntary compliance with tax law from the country’s citizens.”
Earlier this month, K.M. Mani, finance minister of Kerala, headed the Empowered Committee of State Finance Ministers on GST, and explained why this reform is so necessary to the country’s continuous growth.
“GST will enable voluntary tax compliance, facilitate simple and transparent tax administration, reduce scope for ethical hazard as well as tax load on the ultimate customer, “Mani said to the committee, according to Business Standard. “it is an achievement that all the states with so much diversity have come under the umbrella of the empowered committee of finance ministers and inchin
g forward towards creating a simple common market in the country.”
By implementing this tax structure, Mani is convinced that India can operate as a unified market without a disjoined tax system. This tax reform would shift the current scheme by broadening the overall tax base.
Jaitley encouraged Congress to push the measure through. In an interview with the Hindustan Times, Jaitley said bi-partisan support is necessary to demonstrate the Indian economy is streamlined in its tax efforts.
“The Congress has positioned itself against development and growth,” Jaitley said. “Therefore, the Congress wants to present itself in that light. Otherwise, having pioneered GST, there is no reason for them to oppose it. I hope, they reconsider their position and stick to their earlier pro-GST stand. I am targeting the date (April 1, 2016), for roll-out of GST.”
With so many efforts taking place in India, it is clear the country wants to be part of the modern tax trend of accountability, while aiming to expand economic relations.
For more information regarding global tax compliance and regulations, visit our Global Tax Solutions page.
