Among the pledges that propelled Indian Prime Minister Narendra Modi to power a year ago was one to bring home millions of dollars of illicit money the super rich had stashed abroad.
Trying to make good on his promise, his government has introduced a string of tough new measures in recent months designed to crack down on so-called black money, and fueling panic among India’s elite and growing numbers of millionaires.
The anxiety has deepened in recent weeks as a government-imposed tax payment deadline for those who have stashed their cash in foreign accounts approaches on Sept. 30.
The Associated Chambers of Commerce and Industry of India recently issued a statement denouncing the new law for creating “fear and panic” among industry leaders and trading professionals.
“People are uneasy and worried. The penalty and term of imprisonment are disproportionately high,” said Nishith Desai, a corporate lawyer in Mumbai.
And industry experts say that the rich are frantically searching for new tax havens and other ways to skirt the law, which includes penalties of up to 10 years in jail.
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Shortly after his election, Modi vowed he would bring black money stashed overseas back into the country and use it for development. During his campaign, he made the wild claim that so much money was involved he could deposit nearly $230,000 into accounts of every poor person.
“The big fish must not get away,” Finance Minister Arun Jaitley said when the black money law passed in May.
But interviews with chartered accountants, tax officials and businessmen reveal that in recent months many of India’s wealthy have found new ways around the scrutiny.
A favorite tactic, accountants said, is sending family members abroad for 182 days, after which time they become “non-residents” with foreign accounts and businesses where the family members can stash money.
An official in the tax department said that in the last few months, international companies have begun using a new mix of insurance products to mask and move this illegal money to locations like Dubai and Singapore, from where it can be brought into India legally.
The official, who spoke on the condition of anonymity because he was not authorized to speak to the media, said his department has noticed a 250 percent jump in the number of shell companies being registered by what he called “Indian frontmen” in the tax-friendly city of Ras Al Khaimah in the United Arab Emirates. New safe havens like Vanuatu near Australia and Kutunu near Nigeria are also becoming popular, he said.
In October, the government gave the names of some of the people who hold bank accounts abroad in tax havens to the Supreme Court. They included a miner, a gold and silver trader, and the owner of a large herbal products company.
The drive has prompted fears in the business community that the black money law opens businessmen up to harassment.
“I support this government for bringing the black money law. I have no sympathy for people who have stashed money abroad illegally,” said Rahul Bajaj, one of India’s top industrialists and the chairman of Bajaj Auto. But he said safeguards are needed so that low-level tax officials do not harass businessmen and identities are protected. “There should also be an assurance that their declarations will not be termed illegal if there are small errors and for some technical reasons and they are not prosecuted for that.”
In July, a special investigation team recommended new measures to curb black money, including laws to deter betting on cricket and closely monitoring donations to temples, gurus and their ashrams, many of which have storerooms stacked with gold.