Coal Scam 2.0
19 Dec 2014 11:36 PM GMT
In a startling revelation, the Directorate of Revenue Intelligence found that various companies had inflated the value of coal imports from Indonesia for their power plants since 2011. The agency has pegged the upper limit of the overvaluation to Rs 29,000 crore in transactions between 2011-2014. As per investigation, despite shipping the coal imports directly from Indonesia, their invoices were routed through an intermediary based either in Singapore or Hong Kong.
The inflated amount was then sent to the intermediary who, in turn, would state the actual value to the Indonesian supplier. The overvalued component, however, was eventually diverted to tax havens, thereby allowing precious foreign currency to leave our shores in droves. Investigators have said that either intermediaries were related to the importer or that such operations were carried out on a commission basis. In light of such evidence, the DRI has investigated over 80 shipping companies across India in search of documents that would establish the real value of coal imports.
As the incident grows murkier, the ruling establishment has been also forced to search all laboratories involved in collating information to verify the calorific value of the imported coal. The consequences of an inflated value of coal imports has been greater tariffs imposed by the government, leading to a greater hole in the consumer’s pocket.
Despite the fall in crude oil prices, it is no secret that a shortage of coal has drastically affected our energy security. Coal-fired power plants continue to generate 60 per cent of India’s electricity and dire shortages have lead to repeated blackouts. With consumers already paying through their nose for constant electricity supply, such moments of impropriety do have a direct bearing on the nation’s purchasing power. In another key ramification for the government, the above investigation point towards the growing flight of black money or untaxed sums from our shores, with the overvalued component sent to tax havens abroad.
The money eventually kept in safe havens escapes tax and can be used for trade and investment purposes, besides building assets abroad without having to take out large sums of money out of India, which is very difficult, despite the liberalised foreign exchange remittance rules. The government has not loosened the grip on these rules, so as to render these rules useless. Clearly, in order to prevent further outflow of black money, the government must urgently bring in requisite tax reforms, which would clear the muddied the waters of tax administration in this country. Such steps would go a long way towards disincentivising Indian investors from taking their wealth outside India. Instead of going on a goose chase for black money stashed abroad, a bandage for our tax administration looks like a much more realistic target.
The inflated amount was then sent to the intermediary who, in turn, would state the actual value to the Indonesian supplier. The overvalued component, however, was eventually diverted to tax havens, thereby allowing precious foreign currency to leave our shores in droves. Investigators have said that either intermediaries were related to the importer or that such operations were carried out on a commission basis. In light of such evidence, the DRI has investigated over 80 shipping companies across India in search of documents that would establish the real value of coal imports.
As the incident grows murkier, the ruling establishment has been also forced to search all laboratories involved in collating information to verify the calorific value of the imported coal. The consequences of an inflated value of coal imports has been greater tariffs imposed by the government, leading to a greater hole in the consumer’s pocket.
Despite the fall in crude oil prices, it is no secret that a shortage of coal has drastically affected our energy security. Coal-fired power plants continue to generate 60 per cent of India’s electricity and dire shortages have lead to repeated blackouts. With consumers already paying through their nose for constant electricity supply, such moments of impropriety do have a direct bearing on the nation’s purchasing power. In another key ramification for the government, the above investigation point towards the growing flight of black money or untaxed sums from our shores, with the overvalued component sent to tax havens abroad.
The money eventually kept in safe havens escapes tax and can be used for trade and investment purposes, besides building assets abroad without having to take out large sums of money out of India, which is very difficult, despite the liberalised foreign exchange remittance rules. The government has not loosened the grip on these rules, so as to render these rules useless. Clearly, in order to prevent further outflow of black money, the government must urgently bring in requisite tax reforms, which would clear the muddied the waters of tax administration in this country. Such steps would go a long way towards disincentivising Indian investors from taking their wealth outside India. Instead of going on a goose chase for black money stashed abroad, a bandage for our tax administration looks like a much more realistic target.
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