Editorial 1 : Shinning a light
Consortium of Investigative Journalists (ICIJ), has further lifted the veil on the vexed problem of tax havens.
What is tax haven?
- A tax haven is a jurisdiction that offers a low or zero tax rate on foreign income and/or financial transactions.
- Tax havens are often characterized by strict bank secrecy laws and a lack of transparency regarding the ownership of corporations and trusts.
- As a result, they can be used to hide assets and income from tax authorities in other countries.
Key characteristics of tax havens
- Low or zero tax rates on foreign income: Tax havens typically have very low or zero tax rates on foreign income, such as interest, dividends, and capital gains.
- Strict bank secrecy laws: Tax havens often have strict bank secrecy laws that make it difficult for tax authorities to obtain information about the financial affairs of individuals and businesses.
- Lack of transparency: Tax havens often lack transparency regarding the ownership of corporations and trusts. This can make it difficult to determine who is actually benefiting from the tax benefits offered by the jurisdiction.
The extent of the challenge of tax avoidance and money laundering
- The “Cyprus Confidential” focused on how the Mediterranean island has become the preferred port of call for the global rich in their quest for a shadowy financial hub to wash dirty money.
- Over the past decade, a series of investigations — from Offshore Leaks in 2013, HSBC Swiss Leaks in 2015, Panama Papers in 2016, Paradise Papers in 2017, to the Pandora Papers in 2021 — have exposed the complex maze of transactions that show how tax havens help the rich across the world to siphon off wealth and avoid paying taxes in their native countries.
- The use of tax havens to avoid paying the full quota of taxes is an enormous policy challenge that needs sustained attention.
- According to the State of Tax Justice 2023, authored by advocacy group Tax Justice Network, countries the world over are on course to losing $4.8 trillion to tax havens over the next 10 years. (amount equals to the GDP of Japan)
More about Cyprus Confidential
- It involved more than 270 journalists from more than 60 media houses in 55 countries and territories, entailed close examination of 3.6 million documents, in English and Greek, sourced from six Cyprus-based financial service providers and a Latvian agency with an office on the island — in India, the Indian Express analysed more than 20,000 documents.
- The investigation has exposed investments made by prominent Indian businessmen, cashing in on a range of benefits provided by Cyprus: From preferential — and loosely controlled — tax rates to tax exemptions on income and gains of offshore trusts; zero estate duty, no trust registration requirements and the promise of beneficial owner secrecy.
- The investigations also revealed the names of several prominent Indian investors who became Cypriot nationals under the country’s Golden Passport scheme valid between 2007 and 2020.
- In it, Cypriot passports were made available in return for an investment of 2 million Euros and gave the new recipients not just the freedom of movement but also a protective shield for their secretive investments in that country.
Takeaways from the report
- From an international perspective, a big takeaway from the Cyprus Confidential revelations is how Cyprus, despite being a EU member state, became a hospitable financial hub for Russian oligarchs.
- In essence, the investigation has shown how an EU member state has facilitated Russian President Vladimir Putin’s autocratic regime and other dictators and anti-democratic actors in evading taxes and money laundering.
- Within the country, the findings of the investigation shine the light in dark corners, all the better for government and regulatory agencies to move forward on, more purposefully.
Conclusion: Cyprus Confidential is a good way of investigative journalism. It reveals that despite being an EU member and having EU regulatory standards, Cyprus kept on attracting money launderers. This report must alert the tax agencies and governments across world.
Editorial 2 : Digging our way to prosperity
Introduction: “Afghanistan can be the Saudi Arabia of lithium,” noted The Washington Post on July 23. The report showed how Afghanistan can become a new destination of mineral export to the world.
The findings of the report
- In a brilliantly investigated ground report, the article cited a US Department of Defence finding that the Hindu Kush Mountain range in the Nurestan province in Afghanistan could potentially possess a trillion dollars’ worth of critical and rare earth minerals, but in an ironical twist to the tale, America’s foes, China and the Taliban, are now well positioned to reap these riches.
How Lithium is becoming new oil?
- The transition in global mobility from oil to electric is now a given.
- The current global order was established after World War II on the back of oil-based combustion-engine technology.
- It is now being recast with electric mobility technology driven by batteries using minerals such as lithium, cobalt, nickel and rare earths.
- Demand for such minerals is expected to increase 20 to 40 times over the next few decades.
- These minerals are the new oil and the Hindu Kush Mountain range could be the new Middle East.
How India can benefit from the exploration and mining of critical minerals?
- Geological reports suggest that it is likely that such minerals could also be found in the northern Indian side of the Hindu Kush range since these were formed from tectonic shifts of the Gondwana supercontinent.
- This hypothesis has gained further credence with the early discovery of lithium in Jammu and Kashmir this year.
- India is one of the least explored and mined large countries in the world.
- Research suggests that less than 10 per cent of India’s landmass is explored and 2 per cent mined.
- Regardless of the eventual outcome of the discovery process, there is sufficient rationale for India to at least start large-scale exploration for critical minerals.
- Mining and exploration are much more job-intensive than traditional manufacturing.
- The 12th Five Year Plan (2012-17) prepared by the Planning Commission during Manmohan Singh’s premiership said that for every percentage point of growth in economic activity, mining creates 13 times more jobs than agriculture and six times more than manufacturing.
- Mining and exploration employ relatively lower-skilled people than say semiconductor or automotive manufacturing.
- Large numbers of local, unskilled jobs mean greater employment opportunities for backward castes, Dalits and tribals.
A resurgence of mining sector across world
- Mining and exploration are capital and technology-intensive, especially with developments in deep-sea mining.
- It is the private sector that is capable of bringing in the latest foreign technologies, large amounts of capital and deploying it efficiently.
- There is global critical minerals race underway with countries such as Indonesia, the Republic of Congo, Chile, Australia and now Afghanistan in substantial lead.
- Efficiency and productivity in exploration and mining for rare earths and other minerals will be key to India’s ability to catch up and cater to global demand.
- An active government policy with incentives and strict regulations to spur large-scale private sector exploration for critical minerals and rare earths may just be what India’s jobless economic growth needs.
A new global consensus on development: Boston Consensus
- The Kennedy School of Government at Harvard University has launched an initiative, ‘Reimagining the economy’, that seeks to reshape economic development policies away from the current headline GDP obsession.
- This initiative — driven more by politicians, philosophers, political economists and sociologists than macro economists — calls for a government-directed active industrial policy with a focus on jobs and the labour market rather than on output and growth.
- This is the new ‘Boston Consensus’ to replace the 1990 ‘Washington Consensus’ economic doctrine.
- It is time for India to reimagine its economy.
- The measure of India’s economic success is not maximising GDP growth but minimising MGNREGA demand (naturally).
Way forward
- The global shift to electric mobility will trigger an exponentially rising demand for key minerals and rare earths.
- The mere quest for these minerals can generate meaningful jobs and incomes for hundreds of millions, predominantly from underprivileged castes.
- This is a unique economic opportunity where many stars seem to align in India’s favour.
Conclusion: Indiscriminate mining and exploration can be ecologically damaging, but in the contest between livelihoods for millions and ecological conservatism, the need is for a delicate balance tilted towards livelihoods. It is time for India to “dig its way” in search of prosperity.