Financially themed panels in Mumbai, following the government's shock move last year to withdraw high-denomination banknotes from circulation in a bid to tackle tax evasion. Now it is targeting shell companies.  Indranil Mukherjee
Financially themed panels in Mumbai, following the government's shock move last year to withdraw high-denomination banknotes from circulation in a bid to tackle tax evasion. Now it is targeting shell Show more

India targets shell companies in black money crack down



India has stepped up its efforts to crack down on "shell companies" in the country as it strives to clean up its business environment.

“The government is not leaving anything to chance,” says Nishank Goyal, the chief executive of Masters India, a tax solutions company. “The government has seen the complete picture of 'black money' and they're trying to attack it from everywhere.”

Shell companies are a widespread problem in India, often used to hide and launder illegal wealth, or black money, on which taxes due have not been paid.

The Indian government has deregistered 200,000 shell companies, and last month it froze their bank accounts. About 300,000 directors of shell companies have been blacklisted by the authorities. There are understood to be many more such companies that have yet to be identified.

The government is also investigating suspicious deposits of more than US$1 billion made by 20,000 shell companies after the prime minister Narendra Modi moved to root out and halt black money flows in November last year by suddenly banning the two highest-value banknotes.

"Our purpose is to increase compliance so that investors' confidence increases in Indian companies,"  PP Chaudhary, India's junior minister for corporate affairs, told Bloomberg News. "This will also attract foreign investors who would be sure that the companies they are investing in are genuine. We will have to curb shell companies if we want to increase confidence of investors in India".

In August, India's markets regulator, the Securities and Exchange Board of India (Sebi) ordered stock exchanges to take action against 331 shell companies listed on Indian bourses.

Shell companies have played a role in hampering the growth of the Indian economy, with tax revenues to the government being diverted because of the existence of such vehicles.

Estimates of the amount of black money in the India economy range from 10 to 20 per cent of the country's GDP. The IMF puts the country's GDP at $2.26 trillion for last year.

The government has come under immense pressure of late to take steps to boost the economy. There are widespread concerns about flagging growth in the country. In the quarter between April and June, India's GDP growth slowed to a three-year low of 5.7 per cent, down from 7.9 per cent in the same months a year earlier. It is widely accepted it needs to achieve levels of above 8 per cent to support its population.

The move to close in on shell companies also comes as the government has faced questions over how effective demonetisation was, with figures from the Reserve Bank of India showing most of the banned notes were deposited in banks following the demonetisation announcement - suggesting that the black money has made its way into the formal economy.

This is only adding to the pressure on authorities to take action.

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Mr Modi's government “is cracking down on shell companies as part of its larger programme of cleaning up the economy”, says VK Vijayakumar, the chief investment strategist at Geojit Financial Services, headquartered in Kochi in Kerala.

The Panama Papers leak on tax havens last year has brought the matter of illegal money flows into focus globally.

Analysts say that there is a significant shift in India towards eradicating the problem with the measures that are being taken.

“I think this is a real fight toward curbing black money and it's not something we've seen before in the history of the Indian economy,” says Mr Goyal. “It's very refreshing.”

When businesses evade tax through shell companies, it means that a number of legitimate law-abiding firms are left at a competitive disadvantage because they are paying their taxes and are left with lower profits, he says. Therefore, it is important to make sure they are competing in a level playing field.

The efforts are continuing. It has emerged that India's central government is now urging the country's state authorities to try to identify and investigate properties owned by the shell companies that it has deregistered.

Meanwhile, Sebi is aiming to tighten regulations to prevent dubious companies from getting listing stock exchanges, the Indian business newspaper Mint reports.

The moves are largely being welcomed by corporate India, with the country's reputation having been tarnished by the fact that corrupt practices are so widespread.

“It is indeed a welcome step, which will boost the confidence of the investors as it will result in elimination of many shell companies and also act as a deterrent for any future misuse of corporate structure for fraudulent activities,” says Inder Mohan Singh, a partner at Shardul Amarchand Mangaldas, one of India's biggest law firms.

Mr Vijayakumar says the emergence of shell companies can be traced to high income taxes and corporate taxes in India.

“To evade these high taxes many businessmen resorted to over-invoicing of imports and under-invoicing of exports,” he says. “The difference became unaccounted money, which was sometimes stashed abroad. A part of this money later came back to the country through 'round tripping' via the stock markets. Shell companies were also used to derive the benefit of exemption of long-term capital gains from shares.”

But there are "many hurdles on the way", when it comes to cracking down on these entities, he adds.  "Since there is no definition of a shell company, the companies identified can move [to] the court and stall proceedings."
Mr Singh says the steps authorities are taking should be effective in eliminating the use of such companies for illegal purposes, but he goes on to explain that some legitimate firms have been caught in the crossfire.

“This has resulted in some of the companies incorporated for bonafide purposes and which were waiting to commence business to face flak of the government,” says Mr Singh. “In the recent past, India has witnessed a steady economic growth resulting in substantial growth in incorporation of companies. Many of these companies have been incorporated for lawful purposes, to promote start-up ventures, for example.”

There are some who remain more sceptical about the steps that are being taken.

Sangeeta Lakhi, a senior partner at Rajani Associates, a law firm based in Mumbai, says she expects the measures to ultimately be “unfortunately, not very effective”.

“Such measures do create a temporary dent in the activities and business but we Indians find new ways to carry on our activities,” Ms Lakhi says.

With large amounts of black money often going abroad, it becomes even more challenging for the Indian authorities to trace such activities.

But others remain confident that the problem can ultimately be eradicated.

“Certainly if the government continues to strive to solve the problem – as they are currently doing – then we'll be able to come out of this whole cloak of black money,” says Mr Goyal.

business@thenational.ae

COMPANY PROFILE
Name: Kumulus Water
 
Started: 2021
 
Founders: Iheb Triki and Mohamed Ali Abid
 
Based: Tunisia 
 
Sector: Water technology 
 
Number of staff: 22 
 
Investment raised: $4 million 
Key facilities
  • Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
  • Premier League-standard football pitch
  • 400m Olympic running track
  • NBA-spec basketball court with auditorium
  • 600-seat auditorium
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if you go

The flights

Etihad, Emirates and Singapore Airlines fly direct from the UAE to Singapore from Dh2,265 return including taxes. The flight takes about 7 hours.

The hotel

Rooms at the M Social Singapore cost from SG $179 (Dh488) per night including taxes.

The tour

Makan Makan Walking group tours costs from SG $90 (Dh245) per person for about three hours. Tailor-made tours can be arranged. For details go to www.woknstroll.com.sg

What went into the film

25 visual effects (VFX) studios

2,150 VFX shots in a film with 2,500 shots

1,000 VFX artists

3,000 technicians

10 Concept artists, 25 3D designers

New sound technology, named 4D SRL

 

UK-EU trade at a glance

EU fishing vessels guaranteed access to UK waters for 12 years

Co-operation on security initiatives and procurement of defence products

Youth experience scheme to work, study or volunteer in UK and EU countries

Smoother border management with use of e-gates

Cutting red tape on import and export of food

Dust and sand storms compared

Sand storm

  • Particle size: Larger, heavier sand grains
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Dust storm

  • Particle size: Much finer, lightweight particles
  • Visibility: Hazy skies but less intense
  • Duration: Can linger for days
  • Travel distance: Long-range, up to thousands of kilometres
  • Source: Can be carried from distant regions
Specs

Engine: Dual-motor all-wheel-drive electric

Range: Up to 610km

Power: 905hp

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Price: From Dh439,000

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The specs

Engine: Dual 180kW and 300kW front and rear motors

Power: 480kW

Torque: 850Nm

Transmission: Single-speed automatic

Price: From Dh359,900 ($98,000)

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How to apply for a drone permit
  • Individuals must register on UAE Drone app or website using their UAE Pass
  • Add all their personal details, including name, nationality, passport number, Emiratis ID, email and phone number
  • Upload the training certificate from a centre accredited by the GCAA
  • Submit their request
What are the regulations?
  • Fly it within visual line of sight
  • Never over populated areas
  • Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
  • Users must avoid flying over restricted areas listed on the UAE Drone app
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  • Should have a live feed of the drone flight
  • Drones must weigh 5 kg or less
The Settlers

Director: Louis Theroux

Starring: Daniella Weiss, Ari Abramowitz

Rating: 5/5

Profile of MoneyFellows

Founder: Ahmed Wadi

Launched: 2016

Employees: 76

Financing stage: Series A ($4 million)

Investors: Partech, Sawari Ventures, 500 Startups, Dubai Angel Investors, Phoenician Fund

It Was Just an Accident

Director: Jafar Panahi

Stars: Vahid Mobasseri, Mariam Afshari, Ebrahim Azizi, Hadis Pakbaten, Majid Panahi, Mohamad Ali Elyasmehr

Rating: 4/5

MATCH INFO

CAF Champions League semi-finals first-leg fixtures

Tuesday:

Primeiro Agosto (ANG) v Esperance (TUN) (8pm UAE)
Al Ahly (EGY) v Entente Setif (ALG) (11PM)

Second legs:

October 23

Real estate tokenisation project

Dubai launched the pilot phase of its real estate tokenisation project last month.

The initiative focuses on converting real estate assets into digital tokens recorded on blockchain technology and helps in streamlining the process of buying, selling and investing, the Dubai Land Department said.

Dubai’s real estate tokenisation market is projected to reach Dh60 billion ($16.33 billion) by 2033, representing 7 per cent of the emirate’s total property transactions, according to the DLD.

ICC Women's T20 World Cup Asia Qualifier 2025, Thailand

UAE fixtures
May 9, v Malaysia
May 10, v Qatar
May 13, v Malaysia
May 15, v Qatar
May 18 and 19, semi-finals
May 20, final

Key recommendations
  • Fewer criminals put behind bars and more to serve sentences in the community, with short sentences scrapped and many inmates released earlier.
  • Greater use of curfews and exclusion zones to deliver tougher supervision than ever on criminals.
  • Explore wider powers for judges to punish offenders by blocking them from attending football matches, banning them from driving or travelling abroad through an expansion of ‘ancillary orders’.
  • More Intensive Supervision Courts to tackle the root causes of crime such as alcohol and drug abuse – forcing repeat offenders to take part in tough treatment programmes or face prison.

Expert input

If you had all the money in the world, what’s the one sneaker you would buy or create?

“There are a few shoes that have ‘grail’ status for me. But the one I have always wanted is the Nike x Patta x Parra Air Max 1 - Cherrywood. To get a pair in my size brand new is would cost me between Dh8,000 and Dh 10,000.” Jack Brett

“If I had all the money, I would approach Nike and ask them to do my own Air Force 1, that’s one of my dreams.” Yaseen Benchouche

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“If I had all the money in the world, I’d live somewhere where I’d never have to wear shoes again.” Raj Malhotra

Why seagrass matters
  • Carbon sink: Seagrass sequesters carbon up to 35X faster than tropical rainforests
  • Marine nursery: Crucial habitat for juvenile fish, crustations, and invertebrates
  • Biodiversity: Support species like sea turtles, dugongs, and seabirds
  • Coastal protection: Reduce erosion and improve water quality
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UPI facts

More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions

The years Ramadan fell in May

1987

1954

1921

1888

ONCE UPON A TIME IN GAZA

Starring: Nader Abd Alhay, Majd Eid, Ramzi Maqdisi

Directors: Tarzan and Arab Nasser

Rating: 4.5/5

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

House-hunting

Top 10 locations for inquiries from US house hunters, according to Rightmove

  1. Edinburgh, Scotland 
  2. Westminster, London 
  3. Camden, London 
  4. Glasgow, Scotland 
  5. Islington, London 
  6. Kensington and Chelsea, London 
  7. Highlands, Scotland 
  8. Argyll and Bute, Scotland 
  9. Fife, Scotland 
  10. Tower Hamlets, London 

 

Brief scores:

Manchester United 4

Young 13', Mata 28', Lukaku 42', Rashford 82'

Fulham 1

Kamara 67' (pen),

Red card: Anguissa (68')

Man of the match: Juan Mata (Man Utd)

Specs

Engine: Duel electric motors
Power: 659hp
Torque: 1075Nm
On sale: Available for pre-order now
Price: On request

Know your Camel lingo

The bairaq is a competition for the best herd of 50 camels, named for the banner its winner takes home

Namoos - a word of congratulations reserved for falconry competitions, camel races and camel pageants. It best translates as 'the pride of victory' - and for competitors, it is priceless

Asayel camels - sleek, short-haired hound-like racers

Majahim - chocolate-brown camels that can grow to weigh two tonnes. They were only valued for milk until camel pageantry took off in the 1990s

Millions Street - the thoroughfare where camels are led and where white 4x4s throng throughout the festival

Business Insights
  • As per the document, there are six filing options, including choosing to report on a realisation basis and transitional rules for pre-tax period gains or losses. 
  • SMEs with revenue below Dh3 million per annum can opt for transitional relief until 2026, treating them as having no taxable income. 
  • Larger entities have specific provisions for asset and liability movements, business restructuring, and handling foreign permanent establishments.
Liverpool’s fixtures until end of 2019

Saturday, November 30, Brighton (h)

Wednesday, December 4, Everton (h)

Saturday, December 7, Bournemouth (a)

Tuesday, December 10, Salzburg (a) CL

Saturday, December 14, Watford (h)

Tuesday, December 17, Aston Villa (a) League Cup

Wednesday, December 18, Club World Cup in Qatar

Saturday, December 21, Club World Cup in Qatar

Thursday, December 26, Leicester (a)

Sunday, December 29, Wolves (h)