If you are reading this on the 31st or the 1st, a very happy new year to you! Here’s wishing that 2021 brings more positivity, clarity and direction to your life. Meanwhile, this year’s last news bulletin, we decided to do something different. We decided to discuss an interesting business practice - the impossibility and existence of tax havens. Why do these tax havens exist? Read the bulletin to find out more. We also discuss the biggest Indian scam of 2020. We finally talk about how pharma companies benefit from this pandemic. Read more to find out. See you again in 2021!
Today’s Highlight:
We are talking about scams today. And speaking of scams, did you know that tax is the Indian Government's biggest source of revenue? With only 2% of Indians actually paying taxes, this is still our Government’s biggest source of revenue! Maybe that’s why PSUs are being sold…
Meanwhile, an interesting repercussion of taxation policies is the many ways we have devised to save tax. Which is why we have tax havens. Do you remember all those Bollywood movies in which some criminal mastermind stoves away his secret funds in Swiss Banks? Or the harsh reality of finding India’s Bad Boy Billionaires living happily ever after, having escaped justice, in London? Makes you wonder right? How did the UK become a home to Indian’s absconding from the law after scamming us of crores of rupees? Or more specifically, the United Kingdom’s spider web of overseas territories and crown dependencies. Think, Cayman Islands, or the British Virgin Islands. In fact, Britain has 14 overseas territories and seven of them are generally thought of as tax havens. Read this article to find out. Or read our explanation below!
Why is this useful to you, the MBA student?
No matter what specialisation you choose, there is a little something of policy, law, history and just general awareness in this for all. So the first question that comes to mind? How on Earth did the UK become a tax haven? Well, it’s not specifically the UK if you ask the Government. It’s the offshore islands that do not fall under the UK jurisdiction.
It all started post World War 2. The UK was facing a financial crisis of gigantic proportions. This is when President Abdel Nasser decided to nationalise the Suez Canal. Which meant that all trade routes would be under control of not the British or French, but the Egyptians. This meant losing revenues that the British received when they shared control of the Suez Canal with France. This was a bad sign for investors in the British economy. They saw that Britain no longer controlled major world trade, or even had a significant stake in it and so they started exchanging the Pound for other, more valuable currency.
This is when the British Central Bank decided to act. Domestic British bankers were asked to stop lending to overseas borrowers. But this move affected the banks. Bankers were not happy and a compromise was made. The Central Bank mandated that foreign lending could continue, given that the transactions were not in Pound Sterling. Also, they stipulated that lenders and borrowers needed to reside somewhere else, not the UK. Basically, these transactions had no traceable address.
Now if you’ve ever participated in a bank transaction of any kind, you know that a domicile or an address are important aspects. So bankers had to furnish an address for these dubious transactions. They simply chose British overseas territories for the job. And if you haven’t yet figured it out, this was an excellent way to circumvent regulations. Bankers ended up exchanging their pounds to more valuable currency, lending it and borrowing it became an easier process, and it was all deemed legal and above board. Also, local authorities in these areas deliberately designed regulations to make the process more seamless. And offshore banking took off in a massive way. That’s pretty much the story of tax havens started, at last in the UK. A place where you stow your funds, which may or may not be visible on the account books. A great way to save tax for the uber rich.
What do you think? Do you think tax havens are, like many other undesirable aspects of our society, a result of capitalism? Do you think tax havens augment the divide between rich and poor? Do you believe that systems are made to favour the moneyed classes of society? Do you think organisations and companies actually benefit from these havens? Share your thoughts and opinions in the comments section below!
In Other Highlights:
The Story Of Transstroy And An 8000 Crore INR Scam - The Biggest Scam Of 2020
If you’ve watched Bad Boy Billionaires, you know that some people manage to very successfully divert taxpayers’ funds for personal gain without a hint of conscience or moral fiber. Or at least so it seems. Remember the Nirav Modi scam that involved a whopping 7,700 Crore INR? Hyderabad based Transstory, an infrastructure firm, managed to one up them! The question is - how did a small company in Hyderabad manage to siphon off ~8000 Crores? Read this story and find out!
Why 2020 has been the year of IT and pharma stocks
Covid-19 has accelerated the adoption of digital technologies which augurs well for the IT sector. In the case of pharma stocks, the pandemic has improved the outlook as investor focus shifted to covid 19-related opportunities. As far as pharma companies are concerned, the pandemic has improved the outlook, as investor focus shifted to covid-19 related opportunities. Find out the impact of COVID 19 on the pharma sector here!
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