Book Review : Thin Dividing Line - India, Mauritius and Global Illicit Financial Flows

BLACK MONEY AND TAX HAVENS

Black Money has been the hot topic of discussion on Social Media as well as in the regular Media for several years now; yet, few books have come to my notice that deal with this topic. The current book under review – Thin Dividing Line : India Mauritius and Global Illicit Financial Flows by Paranjoy Guha Thakurta & Shinzani Jain is one book that breaks this trend, and takes a deep and in-depth look at at least one aspect of this matter in a no-holds barred factual and detailed analysis of Global “Hot Spots” aka Tax Havens.

This is not easy territory to tread on; quite the reverse in fact. This is a complex topic at the best of times – in fact, it is more than complex. It does not make for easy study, or compilation, or sources, or indeed availability of facts and resources. You cant pick your facts easily; you have to hunt, study, research and go deep, be a miner and dig deeper than deep. This is also an approach that is bound to cause exceeding discomfort to more than a few “Ladies & Gentlemen”. What is more, putting it all in a book is doubly hard – as the content is not easy to fathom, even for a regular reader of Economics tomes like self.

THE BOOK

The authors deserve a round of applause for this effort; in fact, they might even deserve a prize for this research; for it is nothing less that a full-scale research. A research pain-stakingly done, points – factors – facts – laws – business moves n maneuvers – legal moves n maneuvers – diplomatic n maneuvers – international n maneuvers all painstakingly and thoroughly analysed, put together, presented to present a complete and comprehensive picture in front of the reader. That is the tremendous scope of this project: Local facts and factors; local business; national business; Indian Laws; International Laws; Diplomacy; and Laws/approach of the Developed World.

The advantage of this unique approach is that it presents this entire Tax Haven problem in its proper global perspective. We have been looking at it all along in our media from a local or Indian Perspective; this books not only gives a fulsome look at this local perspective – and with uncomfortable and hard hitting data – but also at the larger, global picture which comes out as vital in this entire scenario. In the process, the book also gives a rather discomforting look at the role of the international business and financial players {be they corporates, FIIs or whatever}.

THE ANALYSIS

The questions and observations in this book will be hard to answer or meet for anyone; the authors have been thorough on their research. It goes deep into the many politically hot cases in India, like the Vodafone Tax Case, in exhaustive detail. This was a revelation for me, a Telecom domain specialist, and made for fascinating reading. The entire sordid IPL Saga, and the monetary and legal byplays, or the entire analysis of P-Notes, or indeed the larger point of a nexus of Corporate-Political interests and their byplay that coalesces to cause issues is very well detailed, though not easy to understand for a layman. This book requires a working knowledge of Economics, Accounts and Finance.

Let us look at it through a case covered in the book. Prima Facie, this Vodafone case seemed simple to me; after this detailed analyses, I find it simpler still, though incredibly fascinating. Essentially, both are right from my POV. Vodafone, insofaras the transaction of the single share took place outside India is right; and the authorities, insofaras the net result was tax loss to the nation, is also right. The fact is that tax was avoided – was it legal tax planning, which all of us do, or was it a consipiracy or at the very least an attempt to avoid paying legally due tax? Essentially, a financial transaction place; the underlying assets – or some of them, were Indian; logically – India should get its just benefit. Simple. Or is it? Well, not quite, as it turns out, as you get into the diplomacy and the legality aspects…

This case is emblematic of the entire issue of Tax Havens. The matter is complicated by the scepter of international laws in relation to taxation and commerce; holding patterns of companies, and the blurred boundary between corporate and politicians; between tax planning and tax avoidance; and so on so forth. Now, these factors are not going to go away; they are here to stay. Question is how do we as a nation learn to deal with these factors? Companies use Cayman Islands, Mauritius and so on simply because they are there; there are ways to exploit them – indeed twist some laws, and so on. They are there because no one wants to do anything about them – especially the developed world.

This is where the book makes major inroads – looking at the political byplays and flip-flops by Governments – with focus on our own Government. The laughably insincere and partisan attempts of the West to tackle this issue are forcefully highlighted, as they turn the other way to defend their ground. The western hand cannot be denied, a point brought out forcefully here in case after case. But more importantly, the attempts by our Governments to stem it drives home the ugly reality – be it UPA or be it NDA; and the subsequent buckling to pressure from outside – Indian or Foreign pressure both.

The role of Foreign money needs to be questioned – like for example the identity issues involved P-Notes {why the anonymity? Whose money is actually coming in to India?}. Or take for example the role by corporates, Indian or foreign, in pressurizing Governments, in India or elsewhere, to achieve their own ends. This frequently denies us our just taxes. This brings into question the entire development model adopted – why are we do crazy about foreign money? Do we really need to be so wary, so scared of offending them? The answer to this question lies beyond the scope of this review, and takes us into hardcore Business and Management realm – something I will deal with fully sometime in the future.

CONCLUSION 

Thus, in summary, the book highights all the right problems; issues emanating from laws – Indian as well as otherwise; issues emanating from criminality; issues emanating from international agreements and legal setups; issues emanating from Accounting & Legal standards; issues emanating from diplomacy; and so on and so forth. The bigger questions, one of which is mentioned above, and the other – how can we find a middle path, given the fact of scarce resources, us being a developing nation, as well as the manifest legal issues – these remain unanswered. They cant be answered so easily; do we overrely on FII-FDI – cant we generate internal resources? Cant we demand our just taxes? And so on – each question has parameters relating to Commerce, Economics, Diplomacy and so on. There are no easy answers – but one thing that comes out clearly is a dire need for the Governments in India to resist pressure…. 

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