The Supreme Court's directive on sharing the names of overseas account holders has raised worries about India's commitment to the confidentiality clause in various tax treaties and may impact remittances from the US.
Any move to make the names public without prosecution may hamper signing of the Foreign Account Tax Compliance Act (FATCA) with the US, which contains a confidentiality clause. In the absence of the inter-governmental agreement related to FATCA, all remittances, including payments for exports, would face a 30% withholding tax, said experts.
India and other countries have to sign the inter-governmental agreement by December 31 to ensure that the tax liability does not kick in from January 2015. The UPA government had inked FATCA but a formal signing of the agreement is yet to take place.
The impact will go beyond the US, experts said, as any move to reveal the names in public without launching prosecution will choke government's efforts to get more information about those stashing illicit wealth abroad from other tax jurisdictions.
On Tuesday, the Supreme Court asked the government to share the names with the court within 24 hours, which will be given in a sealed cover.
"You can forget about getting any information from the Swiss authorities if the names become public," said a tax practitioner. During talks with an Indian delegation led by revenue secretary Shaktikanta Das, Switzerland had recently agreed to share information related to the so-called HSBC account holders, if the government completed independent investigations. In addition, it had shown willingness to sign the automatic exchange of information agreement.
Similarly, others pointed out that the proposed Automatic Exchange of Information under the G20 framework contained a confidentiality clause and the 48 "early adopters", including India, are to sign the agreement before 2017.
"Given the strict privacy laws, any government will have doubts about sharing names if they become public," said an expert.
The government has repeatedly said that it is bound by confidentiality provisions and can only reveal the names once prosecution is launched. In fact, German authorities had lodged a strong protest after the names on a list shared by the government with a petitioner were leaked.
The government has also said it has no intention of withholding any names but will comply with treaty clauses.