28/04/23

GLOBAL REGULATION: India wants non-financial assets included in OECD info exchange framework.

As published on indianexpress.com, Thursday 27 April, 2023.

India is pushing to widen the scope of the common reporting standard (CRS) at the G20 grouping to include non-financial assets like real estate properties under the automatic exchange of information among OECD countries, Revenue Secretary Sanjay Malhotra said Thursday.

At present, the OECD’s Automatic Exchange of Information (AEOI) framework provides for sharing of financial account details among signatory countries with an aim to check tax evasion. In August 2022, the OECD also approved the Crypto-Asset Reporting Framework (CARF) which provides for the reporting of tax information on transactions in Crypto-Assets in a standardised manner, with a view to automatically exchanging such information.

Addressing the meeting of the ‘Asia Initiative of the Global Forum on Transparency and Exchange of Information for Tax Purposes’, Malhotra said there is also a need to broaden the scope of AEOI so that the information could be used not only to check tax evasion, but also for other non-tax law enforcing purposes. “We would also like expansion of the CRS from financial to new other non-financial accounts and assets, because the risks are not only in financial assets… there is a risk of tax evasion in non-financial and real assets, properties etc…these will be our priorities as part of the G20,” Malhotra said.

Flow of information has helped us in increasing tax collection and revenue buoyancy has increased, he added. India currently has AEOI with 108 jurisdictions for receiving financial information and with 79 jurisdictions for sending information automatically.

As per the OECD’s Tax Transparency report, amid the current geopolitical and debt crisis, there is a need to check tax evasion and illicit financial flows, especially by Asian nations which are estimated to have lost €25 billion in revenue in 2016.

Quoting a study, the OECD report said 4 per cent of Asia’s financial wealth amounting to Euro 1.2 trillion was held offshore, leading to a potential annual revenue loss of Euro 25 billion for the region in 2016.

The Tax Transparency in Asia 2023: Asia Initiative Progress Report said that the current global landscape makes the fight against tax evasion and other illicit financial flows (IFFs) even more pressing: the aftermath of the COVID-19 pandemic and the geopolitical crisis resulted in slower economic growth, increased government expenditure on public health, social and economic support, and other areas.

This resulted in reduced tax revenues, hindering states’ finances. With a debt outlook deteriorated and the rise in interest rates, the ability to finance the debt, in particular for developing economies, is challenging, while the fiscal space is reducing due to inflation, the report said. “Developing economies are particularly affected, as these flows deprive nations of crucial funds to pursue their development agendas. As governments plan on long-term recovery and resilience strategies, tackling more effectively tax evasion and other forms of IFFs is increasingly pressing,” it said.

According to the report, Asia accounted for 38.8 per cent of the estimated USD 7.8 trillion lost by developing countries due to IFFs between 2004-2013. Tax evasion and other forms of IFFs are a global problem that hinder domestic revenue mobilisation. There is a widespread consensus that the scale of IFFs is significant and growing continually and regional initiatives to enhance tax transparency have proved to be highly relevant to tackle it, the report said.

The ‘Tax Transparency in Asia 2023’ report was launched at the meeting of the Asia Initiative of the Global Forum on Transparency and Exchange of Information for Tax Purposes. Currently 167 jurisdictions are members of the Global Forum which include all G20 countries.