Modi Cabinet Constitutes Special Investigative Team on Black Money

May 28, 2014 Posted by India Briefing Reading Time: 3 minutes

DELHI – At Prime Minister Narendra Modi’s first cabinet meeting yesterday, a special investigative team (SIT) was established to recover “black money,” or undeclared income, from international tax havens.

The new SIT is to be led by retired Supreme Court Justice M.B. Shah, and will comply with a May 23 Supreme Court directive that gave the central government one week to order the establishment of an SIT with the power to investigate and recover black money stored in tax havens abroad.

The Supreme Court directive for the establishment of the SIT follows a June 30 hearing on 26 account holders who allegedly stored undeclared income at LGT Bank in Liechtenstein.

“In the first cabinet of the new government, in light of the directions of the Supreme Court, we have constituted an SIT for unearthing black money. This was an important issue for us,” law and telecommunications minister Ravi Shankar Prasad remarked.

“Tomorrow is the last date [for its establishment], therefore the first agenda in accordance with its policy commitment was to have this very high-profile SIT. The highest level of financial, revenue and economic management of the country are members of the SIT. This indicates the commitment of the new government of India,” he added.

According to a press release from Modi’s cabinet, “the SIT has been charged with the responsibility and duties of investigation, initiating of proceedings and prosecution in cases of Hasan Ali and other matters involving unaccounted money.”

Estimates from the ruling BJP place the value of India’s black market economy at between US$500 billion and US$1.4 trillion. Other estimates such as those from U.S.-based think-tank Global Financial Integrity place the value closer to US$460 billion, however.

The cabinet’s decision to tackle the issue of undeclared income follows the release of new data that indicates Singapore overtook Mauritius last year as the leading source of FDI into India.

Mauritius, historically the tax haven of choice for many Indians, is slowly losing its appeal as the new SIT and looming GAAR increase pressure on individuals and companies taking advantage of the island-nation’s favorable tax regime.

Other tax havens such as Switzerland, Lichtenstein and the British Virgin Islands are also thought to be popular among Indians seeking to hide illegal funds or shelter income from taxation.

Earlier this year, the Reserve Bank of India (RBI) moved to tackle black money and counterfeiting by announcing the withdrawal of all currency notes issued before 2005. From April 1, the Indian public was asked to approach banks and exchange notes issued prior to 2005 for newer bills.

With Modi’s cabinet moving fast to address the looming Supreme Court directive yesterday, investors will be forced to wait and see what surprises it has in store when presented with the opportunity to address more strategic economic and political issues next week.

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

Stay up to date with the latest business and investment trends in Asia by subscribing to our complimentary update service featuring news, commentary and regulatory insight.

Related Reading

E-Commerce Across Asia: Trends and Developments 2014
In this issue of Asia Briefing Magazine, we provide a comprehensive overview of e-commerce trends across the Asia-Pacific region with a focus on developing markets in Southeast Asia. In addition to analyzing macro-level economic and development indicators that signal the potential for region-wide growth, we explore several rapidly growing markets in-depth while highlighting opportunities for investment in each.

An Introduction to Tax Treaties Throughout Asia
In this issue of Asia Briefing Magazine, we take a look at the various types of trade and tax treaties that exist between Asian nations. These include bilateral investment treaties, double tax treaties and free trade agreements – all of which directly affect businesses operating in Asia.