Free 815 words essay on effects o the FATCA/ CRS Implementation on Indian Financial Market for school and college students.
The United States government implemented the Foreign Account Tax Compliance Act or FATCA in 2010 in order to ensure taxpayer information mobility across the globe. Along with this, the government also set up the Common Reporting Standards (CRS) within the framework of the Automatic Exchange Of Information or AEOI, which was set up by the Organization for Economic Cooperation and Development. These American standards s have had great impact on foreign countries that trade with the United States. Needless to say, like many other nations, India was greatly affected by the move, thanks to her considerably large business dealings with the United States.
So what is the purpose behind FATCA in India? As it turns out, there are 4 major concerns FATCA intends to address:
- Ensure there is no offshore tax evasion by US residents/citizens, and detect any such existing activities
- Strengthen information reporting and ensure compliance with US accounts, thus increasing transparency
- Impose a mandatory 30% withholding tax on foreign passthru and withholdable payments to non-compliance parties
- Make it mandatory for US account holders to relay certain information to the IRS
All said and done, how does the implementation of the FATCA in India affect the country’s business? Here’s how. Let’s begin with the positive impacts of FATCA and CRS.
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Helps reduce financial corruption
Since the FATCA and CRS makes it mandatory for customers to provide their self-declaration and tax declaration forms, and impels institutions to provide information about their dealings with the IRS, information that can be accessed by the Indian government at all times, this increases transparency, and helps the government to track down hoarders of black money.
Offshore financial centres under strict scrutiny
With common reporting and access to information from across the globe, it will become easier than ever for the Indian government to keep tabs on offshore financial institutions. This will help in locating and cracking down on cases of tax evasion on an international scale, which would doubtless be a great economic boon to the country, considerably increasing its revenue.
Monitoring assets abroad
The FATCA and CRS would help the Indian government locate and assess the assets held in other parts of the world by Indian nationals. It would also help in getting information about entities in which Indians are beneficial owners.
So far, so good. But, like all good things, the FATCA and CRS implementation comes with its own challenges.
Overburdening of the financial institutions
Implementation of the FATCA and CRS imposed a lot of hassle on the financial institutions, thanks to the new, stringent measures that came into effect. Starting from documenting all account holders- current and previous, and notifying all current account holders to collect and submit the FATCA self-declaration and tax declaration forms, to undertaking a complete overhaul of the information technology systems to ensure efficient onboarding of new accounts, each department in the Indian financial institutions was flooded with a torrent of work.
The FATCA and CRS are basically measures implemented by the American government to ensure that American citizens- residents and expats- are not evading taxes. The job of locating such organisations and individuals falls on Indian financial institutions when India is a host country, which means that these institutions are burdened with further costs.
More work for customers
Yes, that’s true. Even though the FATCA and CRS are mainly implemented for financial institutions, their strict reporting regimes also mean that the customers of these financial institutions have to supply their KYC (Know Your Customer) details to said institutions on a regular basis. Failure to do so would lead to classification of their accounts as ‘non-cooperative’ accounts, which may lead to closure of said account. Needless to say, this only means more unnecessary work for on the end of the customer, without any benefit in particular.
Despite much talk about the implementation of FATCA and CRS in the country, the details about the procedure and its potential impacts were not clear to many parties even after it was finally integrated into the system. As a result, the flow of investments into India thinned to a trickle as many US companies began to reconsider their investment options. This had a major negative impact on the Indian economy, with the employment sector becoming stagnated and foreign revenue dwindling.
Needless to say, the introduction of the FATCA and CRS in India has had a huge impact. Banks and other financial institutions have made it mandatory for customers to provide KYC details. The Indian government responded admirably to the challenges posed by the new rules by circulating detailed guidelines, as provided by the American government- to the financial institutions. Record number of American citizenships has been renounced in the wake of the implementation. Almost on year after India went completely on board the FATCA/CRS bandwagon, financial institutions have reached a smooth pace. Whether this causes any significant upheaval in the future remains to be seen.