In your perspective, is Phantom FDI ethical?

Why should Phantom FDI be avoided?

Phantom FDI should be avoided as it is unethical and can have negative implications for the economy and society as a whole. Phantom FDI refers to financial investments where the actual investment is undertaken by investors through holding companies, special purpose vehicles (SPVs), or shell companies. These investments are then transferred to subsidiaries in the target country to carry out business operations. It is a kind of investment that does not involve the transfer of funds and is mostly used for tax avoidance, money laundering, or round-tripping.

Implications of Phantom FDI:

Tax avoidance: Phantom FDI promotes tax avoidance by diverting profits through offshore entities to lower tax jurisdictions, depriving countries of much-needed tax revenue. This can lead to a loss of public funds for essential services and infrastructure.

Money laundering: Phantom FDI can facilitate money laundering activities by providing a layer of anonymity and complexity to financial transactions. This can make it difficult for regulatory authorities to track the source of funds and prevent illegal activities.

Reduced transparency: The use of phantom FDI can reduce transparency in business operations as it obscures the true ownership and control of assets. This lack of transparency can make it challenging to hold companies accountable for their actions and ensure compliance with regulations.

Concentration of economic power: Phantom FDI can contribute to a concentration of economic power in the hands of a few investors or companies. This can lead to monopolistic practices, reduced competition, and harm to market dynamics, ultimately affecting consumers and the broader economy negatively.

Therefore, from an ethical standpoint, phantom FDI should be avoided to uphold the principles of fairness, transparency, and accountability in economic activities.