Is it fair to put the British Chancellor in the dock?

The first thing a chartered accountant learns is the difference between tax avoidance and tax evasion. It is only when you file a false return or concoct documents for the assessor that it is tax evasion. But ordinary citizens are more capricious. They often smell a rat when a wealthy person is doing legitimate legalized tax planning, especially if it’s their elected representative. This is the sad truth behind what has happened to UK Chancellor of the Exchequer, Rishi Sunak, and his wife, Akshata Murthy, in recent days.

Akshata did not escape UK tax when she reported dividend income from a few shares of her father, Narayana Murthy’s hugely profitable company Infosys, to Indian tax authorities and fulfilled her tax obligations in this country, instead of declaring them as part of her overall income in the UK, where she lives and works with her husband. Tax evasion is a clear and unambiguous legal fact and neither the Chancellor nor his wife can be charged with the crime. But, there is a moral verdict when tax planning is considered tax avoidance and it depends on the perspective and ideology of the observer.

The incident is probably just a storm in a British teacup, but its waters are now lapping on our shores. Vir Sanghvi summed it up very well in an article written for ThePrint, after revealing that Mr. Narayana Murthy is also one of the founder-investors of ThePrint. For us Indians, Mr. Murthy and his team are the professionals who have made the country a global force in software development; they are icons for every national startup today.

In the UK, the families of Akshata and Rishi Sunak embody what are known as the Thatcherite virtues of intelligence, industry and self-reliance. Both sets of parents are upwardly mobile, middle-class couples who have worked hard to build successful careers and businesses and invest in their children’s futures. People with character and values, who respect legality and morality and who have transmitted these ideas to their children. What is now in question is not whether Akshata’s tax status is legal, but whether it is morally wrong in any way.

The British phrase “nondom”, which is how Akshata declares himself on his tax return, is not an exotic term unique to the UK, regardless of its historical origin. This is standard practice in international tax jargon. The cardinal principles of public finance are that no income should escape tax, but it is unfair to tax income twice. When a taxpayer earns income in two tax jurisdictions (two countries), it is declared in the country where it is earned and the tax is paid there.

This is how most international tax treaties are written. Akshata’s action is therefore perfectly normal and eminently just according to all the principles of public finance. After the deluge of criticism the Chancellor faced, she decided to declare dividends earned in India as part of her overall UK income, as her critics demand. Does this mean that she will now pay tax on that income in India as well as in the UK?

If so, it is patently unfair to tax it twice on the same income. Or would the tax once paid on income earned in India be lost to our Treasury and now be treated as additional income in the UK? This would mean that funds that once flowed into India, a country with a much lower per capita income and more in need of money, would now flow back to a country with a higher income. It would hardly be “moral”. Robbing a poor Peter to pay a richer Paul – can liberals square this with their conscience?

In the past, dubious tax avoidance charges have been leveled against UK political leaders who cross party lines. When David Cameron was prime minister, the Panama Papers forced him to admit he had benefited from an offshore tax avoidance trust set up by his father. And, across the political aisle, is Peter Mandelson, a Blairite in the Labor cabinet, who hid the income from books and speaking engagements in a business, who then lent them to him as pocket money. . The chancellor’s wife did not behave so unworthily.

Some also raise the “conflict of interest” argument. Would the chancellor be influenced in his political decisions by the fact that his wife benefits from a “tax loophole”? Except, of course, this particular financial principle is not unique to the UK; it is firmly based on the basic concepts of international taxation adopted by many developed countries.

The other “conflict of interest” issue discussed in the British media was roundly criticized by Sanghvi. Critics of the chancellor suggest Infosys, the company in which Akshata owns shares, should have no dealings with the USSR, despite Britain imposing sanctions on it. This is a ridiculous argument. Why should a commercial company, incorporated in India, adjust its policies to align with the decisions of the country in which the spouse of a minor shareholder is the Minister of Finance? Surely that is not how capitalism works!

Vir Sanghvi suspects the attack on the chancellor is just a ‘racist lynching of a high-flying dark-haired person’. I see no evidence of this. As Sanghvi himself notes, the UK is now a country with a former Chancellor (and current Minister of Health), the current Chancellor, Home Secretary and Mayor of London from the Indian subcontinent. It’s quite a line-up. Its neighbour, the Republic of Ireland, comfortably had a prime minister with Indian backgrounds (Varadkar), who most of us only discovered when he visited his ancestral village in Maharashtra.

Sanghvi mentions the Meghan Markle episode in passing but refrains from comparing the media and public reaction at that time to the current attack on the Chancellor. A closer look would show the difference between the two events.

Meghan Markle’s critics were largely conservative royalists, upset by the damage done to the Queen’s image and reputation. His supporters were liberals who approved of Harry’s independence and outspokenness. Sunak, on the other hand, is championed by conservative businessmen and professionals, who understand the nuances of tax policy. His detractors are more likely to be liberals who distrust all wealthy people, even those who are self-made and law-abiding. The attacks on the Chancellor are ideological and political, not particularly racist.

A misguided preoccupation with the tax debate diverted attention from a second issue: the chancellor’s US green card, which he had kept for several months after taking office. Sanghvi does not comment on this case. A green card does not confer US citizenship and does not necessarily lead to it. The green card is a long-term renewable entry visa, with the holder not limited to a specific period of stay each time they enter the country.

But, when someone holding high electoral office in another country retains a US green card, there could be a hint of impropriety, a suggestion that they would rather live and work elsewhere than devote their time and energies to represent the voters who elected him. That’s all that can be kicked out of Sunak by the most capricious moralist. Barely enough to justify the sound and fury that came out of Britain and echoed around the world.

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