At least $72.7 billion (Rs 4,06,900 crore) of wealth has moved from India to secretive offshore jurisdictions between 1976 and 2010, according to research conducted by campaign group Tax Justice Network.
The actual figure is likely to be far higher, and could be as much as 50 per cent more, says the author of the report, Mr James Henry, former chief economist at McKinsey.
The report , ‘The Price of Offshore Revisited’, released over the weekend, estimates the total figure hidden globally is at least $21 trillion, and could be as high as $32 trillion. The figures do not include non-financial assets such as real estate, yachts, or art collections. The reason the India figure is likely to be an underestimate is because of the issue of transfer mispricing – the underpricing of goods exports or overpricing of goods imports to minimise firms’ income in high tax jurisdictions and shift profits abroad, Mr Henry told
“In this report, we have made the assumption that the actual current account as reported is accurate and doesn’t allow for any transfer mispricing by the corporate sector. When you leave that out you are understating the volume of capital flight, and if you add those in you could get a 50 per cent extension to the figures.”
The Tax Justice Network is currently working on a separate report examining the role that transfer mispricing plays in the global transfer of wealth. The India figure is also likely to be an underestimate because it does not include non-financial assets, he said.
The estimate for India is lower than that for many other big economies: $307.8 billion was moved out of Saudi Arabia during that period, $496.1 billion from Kuwait, $60.3 billion for South Africa, and $306.2 billion from Nigeria. From Russia, the figure is a staggering $797.9 billion, while from Brazil the figure is $519.5 billion.
A wide spectrum of means is used globally from the most simple to the sophisticated.
“In Afghanistan, money goes to Dubai through the Hawala system – so at the one end you have the very basic non-electronic mechanisms through family connections to move money to the other extreme, the most sophisticated who design their own electronic transfer systems.”
The TJN study, based on 18 months of research, focuses on 139 low-middle income countries, using data on unrecorded capital flows painstakingly gathered from resources such as the World Bank, IMF, UN, central banks and national current account data, as well as analysis of private banking assets, from company reports, industry experts and others.
“This offshore sector – which specialises in tax dodging – is basically designed and operated, not by shady no-name banks located in sultry islands, but by the world’s largest private banks, law firms, and accounting firms, headquartered in First World capitals such as London, New York, and Geneva,” he adds.
The amount of money placed in offshore jurisdictions has risen sharply over the crisis: The world’s top 50 private banks managed $12.1 trillion in cross border invested assets for private clients in 201, from $5.4 trillion in 2005.
“The rules are running way behind the industry,” argues Mr Henry, who believes “You find that havens such as Singapore are not even on the OECD blacklist.”
The report raises tough questions for the international community: at a time when many nations are struggling with high debt levels and soaring poverty – as well as uncomfortable pointers to the inequalities that have persisted and grown through this crisis.
An astonishing $9.8 trillion of offshore wealth is held by 1,00,000 people. Were the $21 to $32 trillion be assumed to deliver a return of three per cent, and be taxed at 30 per cent it would generate between $190 billion and $280 billion, twice the overseas development spend of OECD nations, the report estimates.
“Organisations such as the World Bank are just sitting on this data, which has never been analysed,” says Mr Henry. “Since the G20 statement on bank secrecy nothing has been done. We are still left with a black hole in the world economy which is growing.”