Govt expanding tax treaties, machinery to tame black money

Seized with the issue of black money stashed abroad, the government has embarked on making tax agreements with other countries more holistic, as well as oiling its administrative machinery to nab evaders.

“India has initiated the process of negotiation with 65 countries between April and December 2009 to broaden the scope of article concerning exchange of information to specifically allow for exchange of banking information and information regarding tax payers not covered by the DTAA (double taxation avoidance agreements),” finance minister Pranab Mukherjee said at a press conference outlining the government’s stand on black money on Tuesday.

The finance ministry has signed pacts with 23 nations to broad-base the existing double taxation avoidance agreements (DTAAs). Ten of these are existing DTAA countries, while 13 new DTAAs have also been finalised where the exchange of information article is in line with the international standards.
India has DTAAs with 79 countries and modifications are required in as many as 74 agreements.

As per the Section 90 of the Income Tax Act, the government has been authorised to enter into DTAA with other countries to evolve an equitable basis for the allocation of the right to tax different types of income between the ‘source’ and ‘residence’ states ensuring in that process tax neutrality in transactions between residents and non-residents. Tax treaties serve the purpose of providing protection to tax payers against double taxation and thus preventing the discouragement which taxation may provide in the free flow of international trade and investments.

In view of the current detection of undisclosed income to the tune of Rs15,000 crore in the last 18 months, the ministry is also firming up its administrative machinery by setting up eight more overseas income tax units.

Further, said Mukherjee, “Strength of foreign tax division has been doubled. As a part of capacity building exercise, 36 officers were sent abroad for specialised training in transfer pricing and international taxation.”

The government currently has two overseas tax units — in Mauritius and Singapore.