In October 2021, there was a big breakthrough in the world of finance. The media called it the “most expensive expose of financial secrecy”. This was the revelation of Pandora Papers. These papers comprised the names of several renowned persons including billionaires, top government officials, public figures, celebrities, and even sportspersons. The word ‘Pandora’ comes from the Greek idiom, ‘opening Pandora’s box’ which means a source of unforeseen trouble. If it is suggested that the selection of the Indian Cricket Team be based on the Indian Premier League, it will open a Pandora’s box, i.e., in the coming time the team may have to face a lot of difficulties. So, what are these ‘Pandora’ Papers? Like the 2016 Panama papers, these papers are also concerned with financial data leaks. They tell us how the top 1% richest people avoid paying taxes or don’t pay taxes at all. In the year 2019, the International Consortium of Investigative Journalists was given an anonymous tip consisting of the details of 14 offshore companies. It had 11.9M+ files, 6.4M+ documents, and the size was over 2.9TB. It described how the super-rich handled their finances to save taxes. Now, as this was a big chunk of data, it took a lot of time to process it. But finally, a team of over 600 journalists was able to compile the data and present it in front of the general public. This mainly consisted of how the fat-cats invest their money in a tax haven or a country with fewer taxes to avoid paying taxes in the country they earned the money in. They often buy certain assets in the name of offshore companies. The list named 35 world leaders including current and former Presidents, Vice Presidents, more than 300 public officials, and over 100 billionaires.

There are various methods to save taxes including, but not limited to, the formation of shell companies, making a trust and money laundering. But, the Pandora Papers recognise offshore accounts as the most common way of tax evasion by loaded people. ‘Offshore’ means outside the domestic territory of one’s country, but in this context, it refers to the accounts in tax havens. Tax havens are the different countries that have less or no income and corporate tax and where one can form a company while concealing their identity. These tax havens include countries like the British Virgin Islands, Panama, Bermuda, etc. It is fascinating to know the procedure of tax evasion. The opulent go to a tax manager or wealth manager to help them in saving taxes. These tax managers then form a company on behalf of these people in the tax havens. The companies are in the name of these tax managers to maintain secrecy. Then, a bank account is open in the name of the company. Now, these people use this account to purchase various luxurious items like private planes, properties in other countries, etc. As this company is registered in a tax haven, they have to pay minimal tax on these items. Furthermore, they deposit their surplus cash in the bank accounts of these companies so that they don’t have to pay the taxes in the country they reside in. Now, the intriguing part of this is that this is not illegal in every situation. The rich can pay the wealth advisors or lawyers to find loopholes in the tax system. This brings us to the debate of tax avoidance vs tax evasion. ‘Tax avoidance’ means finding loopholes in the existing taxing mechanism to refrain from paying taxes. On the other hand, ‘tax evasion’ means adopting illegal methods to save tax. Unfortunately, there is no clear-cut differentiation between the two as the tax laws of every country are complicated and tangled. So, it’s not right to say that everyone named in these papers is a criminal as these actions can also be taken legally. However, it is certainly immoral and unethical. This can be used by criminals for money laundering and various illegal activities. Vladimir Putin, the President of Russia, had his name on the list. He is accused of buying a property in Monaco for his supposed lover in 2003. The property was bought by a company registered in the British Virgin Islands. It was valued at over €6.3 million and the girl came from a middle-class background. It is debatable whether this was legal under the Russian tax system and whether this was unethical. Famous Colombian singer, Shakira Isabel, also had her name on the list. She was inculpated for opening three offshore companies in the British Virgin Islands. Some famous Indian names on the list are Sachin Tendulkar, Anil Ambani, Jackie Shroff, etc. Overall, over 300 Indians appeared in the list.

The report shows us the downside of capitalism. As the concept of capitalism says “money begets money”. A person from a middle-class background can only join a salaried job or open a business to earn his daily living. If he wants to invest, he will do it in the stock market. But the top 1%, who already have loads of money with them, spend that money to hire tax advisors and find legal ways to avoid tax. Consequently, the rich continue to be perpetually rich, and similarly, the poor continue to be poor. This is a demerit of our economical structure. The options open to the ultra-rich for both earning and saving money are far more than the middle class. A salaried employee can’t open a shell company in the British Virgin Islands to save tax. The most viable solution seems to be that we persuade the tax havens to stop keeping such low taxes. But this isn’t possible as these sovereign countries intentionally keep such low-interest rates to attract investments from the super-rich. The second solution seems to be to amend the tax laws in every country. But unfortunately, this will only make them more complicated for the common man. This will make it necessary for the common man to hire a tax advisor to pay taxes, and also make opening/running a business difficult. And the fat-cats can hire even more skilled lawyers who can still find the loopholes in the system. The topic of Global Minimum Tax (GMT) again comes into highlight while talking about such issues. Under this system, every country should have a minimum percentage of tax but the adoption of this system seems far fetched.

Furthermore, the people listed on these papers include the idols of people. For example, Sachin Tendulkar is an inspiration for many budding cricketers and also a Bharat Ratna awardee, which is the highest civilian award in India. It is the moral responsibility of such renowned persons to act in a manner suited to people of their stature and not commit such unethical deeds.

By Dev Narsinghani