DEBATE :- TAX HAVENS ARE BEING UNDULY CRITICISED, THEY HAVE ACTUALLY PROMOTED

INTRODUCTION

A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all while offering due process, good governance and a low corruption rate. Major tax havens have 2.3 percent of world gross domestic product (GDP), but they host 5.7 percent of the foreign employment and 8.4 percent of foreign property, plant, and equipment of American firms. Per capita real GDP in tax haven countries grew at an average annual rate of 3.3 percent between 1982 and 1999, which compares favourably to the world average of 1.4 percent. Tax haven governments appear to be adequately funded: their average 25 percent ratio of government to GDP exceeds the 20 percent ratio for the world as a whole, though the small populations and relative affluence of these countries would normally be associated with even larger governments.

BENEFITS OF TAX HAVENS

·         High tax rate helps in breading unsocial elements within the country, thus hampering the growth of the country. Example: - Smuggling is more prominent in the countries having high tax rates.

·         Many of the tax havens are well developed and having transparent governance within the country, as compare to the countries having high taxes. Example: - Mauritius is one of the most developed states with transparent governance in Africa.

·         Some tax havens are tax havens because their government uses the taxpayer’s money efficiently. Thus meeting all the requirements of public with very less money.

·         Mostly tax havens have more privatization, thus it gives a ground for competitive environment to be develop, making the system even more efficient.

·         More corruption is found in the country having high tax rate, because of the huge amount of money at stake.

·         It attracts investments into the country, even if this is simply in the form of planting funds into the country. Such funds are usually a much-needed commodity for the country to develop itself, particularly where the country is resource-constrained. It is for this reason that many tax havens promote themselves as financial centers with excellent banking environments.

·         Investments coming into the country can also allow for spin-offs in other areas. For instance, the entrance of an MNC would spell employment opportunities for the local population, thereby lowering unemployment rates. Where the investment is a technologically advanced one (and invariably the ventures tend to be so), it means that intelligence is brought into the country.

·         It was observed earlier that in the late 1950s and early 1960s, when Singapore was desperately trying to get out of the rut that it was in and establish itself despite the lack of resources and poor skills levels among the local population, tax incentives were seen as a major source for drawing the investments into the country.

. The best example of tax havens can be Mauritius.

§  Mauritius combines the traditional advantages of being an offshore financial centre (no capital gains tax, no withholding tax, no capital duty on issued capital, confidentiality of company information, exchange liberalization and free repatriation of profits and capital) with the distinct advantages of being a treaty‐based jurisdiction with a substantial network of treaties and DTAAs.

• Mauritius has signed an Investment Promotion and Protection Agreements (an “IPPA”) with India which provides for free repatriation of investment capital and returns, guarantee against expropriation, a most favoured nation rule regarding treatment of investors, and compensation for losses in case of war, armed conflict or riot, as well as arrangements for the settlement of disputes between investors and The contracting states.

DISADVATAGES OF TAX HAVENS

• Tax havens inevitably receive lower tax revenues then would a high tax country.
• Another possible disadvantage is the fact that undesirable influences may be brought into the tax haven country through its opening up for investments to MNCs and other Large Corporations.
• It is often the case that multinational companies and other big players only have a small set-up in the tax haven. The main decision-making body continues to remain in the home country or in another country where a branch operates from. This means that all the decisions are not made within the tax havens. Such decisions are passed through bankers, accountants and lawyers who handle all the necessary work. This suggests that there is no room for development in the tax haven. This is in effect a counter argument to the fact that investor coming into the country means that skills and development are imported as well.
• Some people worry about the inaccessibility of their money as it is located in a far away offshore tax haven.
• The main disadvantage for offshore companies located in tax havens is that many government and governmental agencies will not accept tenders from these types of offshore entities. These contracts would include defense, civil engineering, education, health authority and other such civil contracts.
• Offshore Accounts are not cheap to set up. Depending on the individual's investment goals and the jurisdiction he or she chooses, an offshore corporation may need to be started. Setting up an offshore corporation may mean steep legal fees, corporate or account registration fees and in some cases , investors are even required to own property (a residence) in the country in which they have an offshore account or operate a holding company. Furthermore many offshore accounts require minimum investments of between $100,000 and $1 million. Businesses that make money facilitating offshore investment know that their offerings are in high demand by the very wealthy and they charge accordingly. 

CONCLUSION

Tax haven as a separate entity is a boom for the society, but when tax havens are exist with countries having high tax then it can become a ban on society, as this tax havens are used by the people in highly tax countries to evade tax. Therefore, each government should try to make their countries a tax haven. Moreover, if all countries in world become tax havens then there would be no issue of evading taxes and, corruption and unsocial activity will itself be reduced to minimum