Tax havens – should they be ousted?
Introduction:Panama paper leak was the biggest reveal of hidden money ever and while no one is spared from the scrutinizing eyes of the tax department, it is also never been an unknown fact that Tax Havens such as Switzerland have always existed to help politicians and riches all over the world hide their black money without having to pay tax on it or without revealing it to the government.
Tax havens are countries that have less than transparent taxation system which heavily encourages tax evasions of various kinds for anyone who wishes to invest there. Their tax rates are so low that rich profile people from around the world are often tempted to hide their money in there with little knowledge to the government of their own country.
Often called offshore investment, they are either lauded by people for being a safe place for investment or they are simply demonized by media for being a hidden stash of money in order to run off from the income tax department. Either ways tax havens have existed and will continue to exist. Or should they not exist at all amid so much leaks and allegations?
No:1. Reduced tax: Foreign investors get tax discounts and incentives when they stash their money in these offshore banks that are in tax havens. They are actually designed to attract more investors from around the world. They lent out this money to the highest bidders which brings them good return. These tax havens are usually small countries with not much of an economic structure to rely upon. When tax rates are higher in their home country, these tax havens are a rescue for them. Offshore investment cannot be designated illegal and so could also be said about tax havens.
2. Protection of resources: One might be earning high at one point of time in life but they are pretty sure that is not going to last forever; nobody’s does. They have the right to invest their money somewhere safe and where they could get reliably leave it for later use. The money investments in tax havens are also protected from recurring changes of laws of their own nation wherein new lawsuits could be filed against someone and their earnings questioned at any stage of life.
3. Secrecy: Most of the banks in tax havens offer higher level of confidentiality than could be expected in any other place of investment in your own country. Even if you have inherited a certain amount of fortune or property from your ancestors, you are likely to pay heavy taxes before you get the ownership. However, in tax havens there exists quite a simplified process for transferring ownership. There are terms laid out for your secrecy and they cannot be breached so you can rest peacefully about these kinds of investment even if you want them to be hidden from your family or business partners.
4. Tax doesn’t go in right hands anyways: Even if the rich class are to believe that the tax they will pay in their own country is to go towards the development of their own country and making lives better of those who are downtrodden, we all know that the truth is quite different. The tax that would flow into government stash would indirectly flow into corrupt hands of politicians and their scams. These politicians will also head towards tax havens to secure these amount. Why can’t the earner do it themselves?
Yes:1. Avoiding taxes: In simple terms, tax havens provide a base for those people who want to escape paying tax to their home government. They simply stash their money in a safe that is out of reach of the government agencies and there is no finding out what kind of money is being deposited there. Those could be and in most cases are black money that have been earned through illegal means. Criminals and underworld people find it a bliss as there is absolutely no questioning on the source of their income which is not the legal process at the banks of their home nation. You live in a country, enjoy the facilities and rights that are given to any other citizen and when it comes to paying back to your nation so that they could be developed more, you hide away your earnings at a place where there will be no taxing by your own home government. That is cheating indeed and no good citizen should be involved in these kinds of investment.
2. Hidden costs are often higher: People usually hide their money in tax havens or let’s say invest their money there in order to save on income tax but there are costs of setting up business in a tax havens. There are terms and conditions for owning accounts in an offshore bank which may include having own house or business in that country. For setting up these terms it takes more incurred cost than they could have to deal with while paying tax in their own country. They also call for higher than normal investments only.
3. Poor revenue for the government: More rich people in the country should mean more revenue for infrastructural development in the country but that is not achieved because of tax havens where usually the larger part of the income is saturated. It results in middle class and higher middle class paying most of the taxes even when their earnings are not quite high and the rich flying away to Swiss Bank to deposit their earnings. They do pay a majority of their earnings in setting up the account but yet hesitate on paying tax to their own government. How are underdeveloped countries supposed to grow if these tax havens continue to get all the advantages?
4. Bad reputation: Media isn’t completely wrong when it demonizes offshore investments. Despite promising confidentiality, there are always loopholes through which papers are leaked and hence people do come to know what you have been up to while promising high ideals to your people. You are then at a risk of losing everything you earned, including business and reputation. There is also no stability in tax havens and the different rules that they have, quite different from what you know, could be confusing and leading to stress.
Conclusion:The sunny places for shady people, often the phrase used to describe tax havens, is not a good news for the development of any nation. But since everyone from the top notch business people to those high officials running the nation are involved in big investments in tax havens, there doesn’t seem to be any closure of these hiding places. These small economies benefit from the investment of people from across the world but at the same time their home countries lose heavily in terms of revenue.
Panama papers seem to have been a big exposure, let’s say the biggest ever, yet we don’t know what will come out of it anyways. There doesn’t seem to be any stopping people from investing in tax havens and there is no one who could actually make such laws for they are all waist deep into the conspiracy themselves.
