“It is not a sin to tax less”

I have not written in a while. But Financial Secretary Dev Manraj’s speech in the 8th Asia/Africa IFA Conference made me want to write again. Finally, an advocate for the Mauritius IFC speaks out loud and clear. Pity Indian (or for that matter, Mauritian) journalists were not here to listen. “Is it a sin to tax less?” he asks, “It is not because of a few accidents that we have to scrap the motorway,” “Are they protecting their own rights and preventing us from climbing the social ladder?” “When people think we are a rogue nation, it hurts us,” “India can now stand on its own two feet. How? By money coming in through Mauritius, it is Mauritius that helped towards India’s rapid development,” “Don’t kill us off with bad publicity” …

It has never struck me more how much taxation, and all the debate around it, was a political issue. It was highlighted by Dr Rama Sithanen during the conference that it is perhaps not a coincidence that international tax developments / issues such as Base Erosion and Profit Shifting (“BEPS”), Transfer Pricing (“TP”), US FATCA, and GAAR Provisions came at the forefront of global agendas just when most of the G20 countries were crumbling under debt and the financial crisis was unraveling. Below is the Hitchhiker’s take on the so called tax issues international organisations have been lamenting about for the past decade or so.

Will Pay Taxes


The core issue here is globalisation. We live in a global world, intelligent businessmen have figured out that, by shifting production elsewhere, they could enjoy cheaper labour, cheaper land, cheaper facilities, and thus make more profits. The global community became so interconnected that it was soon realised that more cost optimisation could be achieved by shifting profits “offshore”. This can be viewed as an outsourcing of services: secretarial, accounting, management, administration, consultancy. The small jurisdiction gets administration fees, young graduates are happily employed in “finance”, multiplier effect for the economy, the businessman is saving money, everybody is happy. But now, boom! G20 countries are heavily indebted and they realise that their only salvation lies in plugging tax loopholes: making sure that the Taxman is not missing on any collectable cent, and even going to the extent of making the noncollectable cent become tax money due! So the OECD and co. ( which are incidentally funded by the G20 “rich” club ) have started massive campaigns against what they call “aggressive tax planning”.

OECD defines BEPS as BEPS (Base Erosion and Profit Shifting) looks at whether or not the current rules allow for the allocation of taxable profits to locations different from those where the actual business activity takes place, and what could be done to change this if they do. But really, take Google, Apple, Starbucks. How do you allocate profits when the copyright belongs to one country, the manufacturing in another, the customer base in another? Professor Philippe Malherbe asks if sovereign tax rates are still applicable in the global era of today. Isn’t it time to think about some form of “global” tax rate? A utopia, you say? For now, maybe…

In a very interesting slide, Caroline Silberztein quotes “Multinational corporations, stateless income” by Sinclair Davidson – RMIT University (Australia): is the corporate tax base really being eroded? The paper shows that corporate income tax rates have reduced quite substantially over time – yet corporate income tax revenue has not: the average OECD corporate income tax rate has decreased from 50.5% in 1983 to 29.6% in 2010; yet, revenue collected from the corporate income tax as percentage of the GDP increased from 7.6% in 1981 to 8.6% in 2010. So what is all the fuss about base erosion?


Uncle Sam

Oh well, what can I say about FATCA? It makes me think of the big octopus state of Uncle Sam spreading its tentacles all over the world. Cumbersome reporting requirements, criminal offense for non compliance, suspicious software being installed all over the world. Soon, the only place one would feel really free from the prying eyes of the IRS would be on Mars.

Tax Havens

First of all, how DUMB are NGOs like ActionAid and Oxfam? Or more importantly, how dumb do they think people are? I have been racking my brain to see the connection between tax havens and poverty in Africa. Say, Mr Rich Guy decides not to pay heed to his tax planner’s advice and pays his taxes to the IRS or to HMRC fair and square. Where in the world is the guarantee that this tax money is going to Africa to “help the poor”, especially when these countries are themselves sinking in debt by the minute? In my opinion, this is a huge PR campaign (of very bad taste) to prepare the world for FATCA, BEPS action plan, and whatever comes next. Mauritius and other targeted IFCs are mere collateral damage in the process.


The issue of substance is a fleeting concept. A walk in Ireland would make you think you are in Silicon Valley. It is not an issue to prove that management and control emanated from an IFC, especially in today’s era of interconnectedness. Board meetings, place of registration of company, office premises, qualified employees. You name it, the IFC has it. Will the Taxman stop the definition of “Substance” here? Let’s wait and see…

What should Mauritius do?

What does not kill us will make us stronger. The only thing we need is to know where we want to go and have the political will to stand by it. Switzerland or Singapore did not get to where they are today by bowing down to international pressure. The opportunities other than focusing on taxation treaty benefits abound. We must get the fragile balance between sound regulation and competitiveness right. If India decides it no longer needs us, so be it. Africa is rising, and it is starving for capital…

Disclaimer: This post reflects personal views only.

Satyamev Jayate Episode 1 – Female Foetecide


For once, I thanked my Behenjis for their efforts in making me learn Hindi. I just finished watching Satyamev Jayate on youtube and had to use several tissues to wipe tears from my eyes. Objectively, a nice philanthropic effort from Amir Khan. The research and the real life cases of the victims of female foeticide in India were real eye openers for a problem that society has long ignored. How can mother in laws, themselves being women, force their daughter in laws to abort female foetuses? And in much of the cases subject to force or extreme violence? (one of the victims’ mother in law pushed a new born premature baby girl down the stairs to try to kill her, one mother expecting a daughter had her face badly bitten, another one was made to abort 6 times without her knowledge) How can the notion that a male foetus is a much better prospect than a female one be so deeply enshrined in people’s minds that they don’t mind going to incredible levels of cruelty to achieve that goal? I can understand that in the Stone Age, the men were the food gatherers, that they were physically more strongly built than their female counterparts, and that some decades back, only men used to be money makers in families. But hello we are in 2012. In my circle, most of my female friends earn more and have achieved more, or at least as much, as my male friends. At university, and at school before that, it was a known fact that the girls were more academically intelligent than boys. And as for the matter of physical strength, we no longer live in a society where we have to hunt for food. Actually, in my opinion, the whole notion of masculinity is kind of overrated in the time where we live in. And I am not saying that only because I tend towards feminism. I mean, if you ask me to name male actors that portray virility, I would have trouble coming up with more than a couple of names (actually the only two that come to my mind are Sunil Shetty and Daniel Craig). I mean, let’s get real. David Bekham. Ryan Gosling. Leonardo Di Caprio. Justin Timberlake. John Abraham. Shah Rukh Khan. Metrosexual much??? Just have a look at what’s trendy for male models on Fashion TV: nicely chiseled androgynous faces!!

To get back on topic, female foeticide is so cruel it makes my heart ache. And it is an equally alarming practice in China as well. Cheers to Amir Khan for having used his stardom to sensitise people on the subject. Strictly on the TV show, I thought it was well brought together, you can see that lots of research were put into it. True to India, having most members of the audience cry, added a “sensationalisation” aspect to the show, but then again that’s India where people usually cry even at children dance contests. To complete the debate, I would have personally liked to also watch an interview of one of the bad guys, one of the pros of female foeticide. I guess that might have either been too difficult to obtain, or the show’s objective was not to have a balanced debate. But it would have helped its credibility, sometimes most people live in their own cocoon and have trouble believing that such cruelty exists. Well sensational or not, Satyamev Jayate is a must see, and I will certainly watch the next episode.