In Kolkata, there is a community of chartered accountants, and it is easy to find ‘directors’, who for Rs 5,000 will sign anywhere.
Kolkata has turned out to be India’s own tax haven, thanks to the presence of a large number of shell companies (the term for formal existence but with close to no operations or assets).
The income-tax (I-T) department is now planning a major crackdown on such companies here. This is part of a recent initiative by the central government to put a curb on ‘paper companies’, to unearth undisclosed money.
Arijit Pasayat, vice-chairman of the Special Investigation Team on such money (it was appointed by the Supreme Court) comes here on Tuesday to meet I-T officials.
“Almost, 90 per cent of shell companies are in Kolkata. Hence, it will be a major activity centre for the government’s planned crackdown on such companies,” said a senior I-T official.
The reason why Kolkata is the preferred choice of venue is said to be easy availability of professionals in this type of activity, with an established network.
“The effective tax rate is around 24 per cent. Hence, for earned capital of Rs 1 crore, one pays Rs 24 lakh as tax. In Kolkata, one pays Rs 50,000-70,000 to the entry operator to form a shell company through a structured transaction and save on taxes,” said an official.
The method is somewhat like this. If one needs to convert Rs 1 crore capital from ‘black’ (hidden) to ‘white’, the original owner of the money will give Rs 100,000 to an entry operator, who’d divide the sum into 10,000 shares of Rs 10 each.
Each of the shares would then be sold at an exorbitant premium of around Rs 1,000 to directors of shell companies. This would instantly increase the value of the company from Rs 100,000 to Rs 1 crore.
Through a network of fake companies, the money then moves to the original owner. The entry operator charges a fee. Often, the ‘directors’ of these companies are daily-wage earners like tea sellers or office guards.
The more the capital, the higher the cost of registration for opening such a company. Thus, opening one with Rs 1 lakh capital would require much less of registration fee than opening one with a capital of Rs 1 crore.
“In Kolkata, there is a community of chartered accountants (CAs), and it is easy to find ‘directors’, who for Rs 5,000 will sign anywhere. There are brokers and entry operators; they run many companies from a single premise and a laptop,” said an official of the I-T department.
According to sources, the department has identified at least 150,000 shell companies in this city, with nearly 6,000 CAs allegedly involved. Subrata Kumar Das, chief commissioner of I-T here would not comment on the issue.
According to informal estimates, about 75 per cent of the professionals involved in opening shell companies in Kolkata are not even professional CAs.
“Setting one up does not even require CAs. A person with a basic knowledge of finance can undertake such transactions. A CA only certifies the books, not the company,” said a source.
This apart, the cost of hiring a CA is three to four times lower in Kolkata than in Mumbai.
Recently, the Prime Minister’s Office formed a task force to prevent the formation of shell companies. In a statement, it had said that a sample survey found Rs 1,238 crore (Rs 12.38 billion) in cash was deposited in these entities during November-December. And, that 559 beneficiaries laundered money to the extent of Rs 3,900 crore (Rs 39 billion) with the help of 54 professionals.
Photograph: Rupak De Choudhuri/Reuters