IN KNOTS:Gordon is under pressure to remove the tax privileges

The Lakshmi Mittal saga is refusing to die out. The media in Britain is especially targeting Asian businessmen. By labelling Mittal as a tax avoider, it is putting immense pressure on Chancellor Gordon Brown to curb non-domicile tax. The tax allows any person who is a UK citizen with substantial interests or businesses outside the country and who spends less than 90 days in the country to be charged only on the UK business and not the global income.
It’s a privileged status enjoyed not only by Indian businessmen but by thousands of foreigners, especially Commonwealth citizens and other international businessmen who benefit from this so-called loophole.

After creating a furore over Prime Minister Tony Blair’s favours to Mittal and denouncing Mittal’s support for the campaign in the US on steel tariffs, the media is now picking on the tax loopholes that allow businessmen like Mittal to benefit from non-domicile status. A leading newspaper ran a story on “hitting the jackpot at the country’s cost” listing the tax-avoiding businessmen who, predictably, were mainly Indian. Mittal, Lord Swraj Paul, G.K. Noon, Christopher Ondaatje and several other leading businessmen in Britain benefit from non-domicile status. Three of the Labour Party’s top five individual donors are still entitled to the tax breaks: Noon, Mittal and Ondaatje.

However, the focus is on Indian businessmen, especially Mittal. Brown, who has been promising to curb the non-domicile loophole ever since he was in the Opposition in 1994, is now trying to placate the media. He has indicated that he will look into the matter in the budget that is to be presented next month.

Diaspora: Economy

Tax Loopholes > People who spend less than 90 days in UK pay lesser tax. > Expensive homes are transferred to offshore companies to evade stamp duty. > Farmland exempted from inheritance tax. > No inheritance tax on priceless art in lieu of public access.

This implies dark forebodings for those enjoying the non-domicile status. Once curbed, citizens will have to pay tax on their global income. In other words, the tax will shoot up four-fold. Non-domiciles surrender only 10 per cent of their tax compared to the almost 40 per cent paid by ordinary Britons, thus depriving the treasury of several billion pounds.

Plugging the loophole may lead to capital flight from the UK, warns Deepak Mathani, chairman of South Asian Development Partnership. “Indian businessmen will move to Dubai, Singapore or Channel Islands. If the Government brings out some legislation then even Greeks, Arabs and Africans will leave.”

The Conservatives had tried to do the same when they were in power. But when Greek shipping magnates threatened to leave the country, the Tories were forced to back off.
New Labour boasts of financial pragmatism and real politik. It comes across as a business-friendly party and intends to make London the financial capital of the world. It is, therefore, imperative that the party keep the big businesses happy. Even though businessmen like Mittal are non-domiciles they bring huge benefits to the British economy and inward investment. According to a senior partner at accountancy firm Grant Thornton, the Government by scrapping the non-domicile status would end up shooting itself in the foot as entrepreneurs would not come to this country.

Tara Mukerjee, head of the Confederation of Indian Organisations, says, “It is deplorable that businessmen from the Commonwealth are being targeted. They will seriously reconsider investing in this country if it becomes a non-profitable venture.” Indian businessmen in the UK have contributed a lot to the economy. When the world and European economy suffered last year, British Asian economy posted an increase.

Pierre Gerbier, a banker, is supportive of luring non-domicile millionaires to the UK. At the moment they can live in a developed and stable European Union (eu) country but with very low taxes. Under the cover of eu, the loopholes make Britain a tax haven. Once curbed, the UK will naturally lose its edge over other eu countries like France or Germany.

But according to treasury sources, non-domicile status in taxation is something that has remained for decades and would be very difficult to change. Brown may have made promises to curb non-domicile tax earlier but since moving into No. 11 Downing Street, he hasn’t pursued it actively. So whether or not he’ll take concrete steps in that direction remains to be seen. There is, however, little doubt that any such move would not be in the larger interests of the British economy.

—Ishara Bhasi