2. WENDELL HOLMES ONCE SAID "WITH TAXES, I
BUY CIVILISATION". IT MEANS THAT TAXES ARE
THE COST PAID FOR LIVING IN A SOCIETY AND
FOR BEING A PART OF CIVILISATION.
Source: Kelkar Committee Report on Tax Reform
Chidananda Jena
Email: chidananda.jena@gmail.com
Skype/ YM: chidanandajena
4. TAX GDP RATIO WORLDWIDE
4
Tax GDP Ratio 2012 by Heritage Foundation
Canada
32.2
Mexico
29.7
USA
26.9
Australia
30.8
Japan
28.3
New Zealand
34.5
Denmark
49
France
44.6
Germany
40.6
Italy
42.6
Netherland
39.8
UK
39
OECD Un-weighted Average
34.8
Argentina
37.2
China
17
India
17.7
Russia
36.9
Source (wikipedia)
5. INDIAN TAX DISTRIBUTION
5
All India Tax Distribution 2012-13 ($/Rs conversion at 12-13 level apx)
in Bn $
figures are approximations
($1=$ 50) % of PAN India Tax
Corporate Tax
70.34
21.53%
Income Tax
38.26
11.71%
GoI Direct Taxes
108.61
33.24%
Customs
32.97
10.09%
Union Excise
34.40
10.53%
Service Tax
26.54
8.12%
GoI Indirect Taxes
93.91
28.75%
Total Govt of India Taxes
207.61
63.55%
State share transferred
58.81
18.00%
Balance tax with National Govt
148.42
45.43%
VAT of State
74.51
22.81%
State Own Tax Revenue (mostly Indirect)
124.18
38.01%
Total Tax at the disposal of State
182.99
56.01%
PAN India Total Indirect Tax
218.09
66.76%
PAN India Total Tax
326.69
100.00%
6. INTERNATIONAL TAX DISTRIBUTION
6
Comparison of OECD Countries in % of total Tax (Aproximately)
Mexic
USA Canada o
Personal
Income Tax
Corporation
Tax
UK
EU
Japan (some OECD
German
(unweigh Austral
taxes
(unweig
y
France Finland ted)
ia
missing)
hted)
35.3
34.6NA
28.7
23.9
17.5
31
25
38.5
17.5
24.9
8.1
10.4NA
7.8
3.5
5.7
7.7
8.1
16.7
13
9.3
Social Security
Contribution
26.4
17.5 18.7
18.5
40.5
40.2
26.7
29.8
5.6
18.5
27
Direct Tax
from earning
69.8
62.5 18.7
55
67.9
63.4
65.4
62.9
60.8
49
61.2
Property Tax
12.1
1.6
11.9
2.4
7.3
2.3
5.4
9.5
10.3
5.6
Goods &
Service Tax
18.2
26.1 52.5
32.7
29.4
25.5
32
30.4
29.7
20.3
32.1
8.4
15.1 19.4
19.8
17.9
16.8
19.4
18.9
13.7
9.5
18.9
Consumption
Tax (in GST)
10
Source: Tax Reform Trend in OECD Countries; Centre for Tax Policy & Administration, OECD
8. TREND in TAX REFORM
8
Increase Tax Base & Reduce Tax Rate
Reduction of Exemption & Deduction
Growth with increase in horizontal & vertical Equity
Reduce Compliance Cost & Administrative Burden
Reduce Discretion & Corruption
Voluntary Compliance & Self Assessment
Heavy penalty for non-compliance & evasion
Removal of ambiguity used for tax avoidance
9. CUSTOMS
9
WTO guides Customs duty reform for level playing
field
WTO allows discrimination by way of MFN-Scope for
misuse
Anti dumping duty - (Adjustment equivalent to TP)
Fast Track Clearance Scheme not in vogue-Delay
persists
Multiple tax rates persists for closely related items
Exemptions persist-Scope for misuse
10. VAT/ GST
10
Self declaration of Tax Payer
ITC (Input Tax Credit)/Elimination of Cascading – Scope
for misuse
Principles of Subsidiarity in levying VAT/GST
Multiple tax rates persists for closely related items
Exemptions persist-Scope for misuse
11. OTHER REVENUES
11
Land Revenue- Small in comparison to administrative
cost
Transport, Excise- can be integrated with VAT/GST
Mining Royalty- Small in comparison to profit of the
miners
Property Tax- Commensurate with income from
property in urban areas
Carbon Credit – Back to back pass on to local
governments
Green Tax – Environment Justice
Devolution of taxation powers to local governments
12. EQUITY through DIRECT TAXATION
12
Income= Consumption + Change in net worth
Progressive higher taxation on higher earnings
Income tax on individual income leads to
corporatization and avoidance of distribution of
profits to shareholders- to take profit out in course of
capital gains
To prevent this corporate tax on profit of corporation
is required. However, this leads to double taxation,
when dividends are taxed again under income tax
This creates bias for debt financing Maximum scope
for tax avoidance
13. Act!onaid Research on MNEs Tax Avoidance
13
Tax Holidays & Incentives
Investment on Capital Assets – Tax deduction
Incentives for domestic small firms availed by MNEs
Reshuffling Ownership (Dividend), Thin Capitalization,
Royalty, Management Fee
Lower Sale Price by subsidiary to AEs in low tax countrywhich in turn sells at much higher price
Shipping Goods through MFN treaty countries (Customs)
Treaty Shopping-Shell Companies
Regional Cooperation to avoid Tax War, GAAR
Tax Havens & Developed Countries amend tax policy
MNEs Publish Tax Policies
14. DEVELOPED Vs DEVELOPING
14
Issue of Developed Vs Developing
Challenges of Standard Tax Jurisdiction Vs Low/ No/
Privileged Tax Jurisdiction
Most Tax Havens are under the control of West
Information from Tax Havens not accessible
OECD Guidelines favors developed
UN Guideline favors developing
Developing Countries are NET IMPORTING CountriesGoods, Service and Capital
Developing Countries are financer of Developed
Economy
15. Scope for Profit Shifting
15
Residence Vs Source
Transactions modify classification of Income
Permanent Establishment (PE)
Income from Immovable Property
Business Profit
Income from Shipping, Inland Transport, Aircraft
Dividend
Branch Profit Tax
Interest
Royalty
16. Scope for Profit Shifting
16
Capital Gain
Capital
Independent Personal Services
Dependent Personal Services
Employee Stock Options
Directors’ Fees
Artistes and Sports Persons
Star Companies
Pension & Social Securities Pension
17. REVIEW of ACCOUNTs, POLICY & JUDGEMENTs
17
Obtaining Tax Returns using Information Act
Obtaining accounts available on public domain
Obtaining information from AEs from other nations
Profitability of the firm and price of the product compared
globally- EPS, OPM, NPM, Quick/ Debt Equity ratio etc.
Profitability Comparison of Domestic Vs MNEs
Benefit to GDP Vs perceived Tax Avoidance
Macro-Economic Indicators-Short Term and Long Term Impact
Preparing report and submitting to MNE for clarification purposes
Publishing reports along with answers of MNEs
Watch on Tribunal and Court Decisions
Review of DTAAs and Laws on real time basis
18. ACCOUNTING STANDARDS for IT/ TP
18
IFRS, US GAAP or National GAAP
Standards are prescribed keeping shareholder’s
interest in view
Does not disclose separately itemized ITs as shown in
previous slides
Does not disclose TP
Standards need to be prescribed keeping double
taxation and non taxation in view
20. INTERNATIONAL STANDARDs
20
Transfer of technology & Capital to developing nations
Protect MNEs from double taxation
National Standards- Brazil, India
Avoidance of Double Taxation/ No Taxation
UN
Model- Bilateral
OECD Model-Bilateral
Information Exchange and Action
MCMAATM
(OECD)-Multilateral
UN Model -Bilateral
21. INTERNATIONAL BODIES
21
EU automatic information exchange (AIE)
Foreign Account Tax Compliance Act (FATCA)- financial
institution offers significant cross-border bank services
EU Savings Tax Directive (EUSTD)- 17 European
nations as well as several BRICs (Brazil, Russia, India,
China)-financial intermediaries, but not shell Cos
Need of an organization like INTERPOL to track
Capital and Profit Shifting, Treaty ShoppingInternational Tax Service (INTAS)
Need for International Tax Reallocation Agency
22. SAFE GUARDS for ALL
22
Transfer Pricing on Arm’s Length Principle
Safe Harbor
Minimum Alternative Tax (MAT)-Domestic Tax India
Presumptive Tax (PT)-Domestic Tax equivalent to SH
Advance Transfer Pricing Agreement (APA)
Mutual Agreement Procedure (MAP)
23. ANTI AVOIDANCE PROVISIONs in DTAA
23
Look-Through” Provision
Force of Attraction
Subject-to-Tax Provision
General Bona Fide Provision
Activity Provision
Stock Exchange Provision
Alternative Relief Provision
24. SPECIFIC ANTI ABUSIVE RULEs
24
Misuse of Most Favored Nation(MFN) agreements to
avoid customs duty
Controlled Foreign Corporations Rule-conduits
Foreign Investment Fund Rule-avoidance of tax on
investment income
Thin Capitalization Rule
Exit/ Departure Tax Rules- change of residence before
realization of treaty exempt capital gains
Dividend Stripping Rules-transfer dividends to treaty
exempt capital gains
Transaction in securities leading to indirect transfer of
assets-look through provision - Vodafone-hutch case
led to retrospective amendment
25. AREAS OF BPR & POLICY RECOMMENDATIONS
25
• Business Intelligence
Parameters
• Audit/Assessment
• Enforcement-GIS tracking
• Advance Ruling & Alternate
Dispute Resolution
Audit
• Appeal Management
System
Intelligence
Appeal
Payment
Refund
•
•
•
•
•
•
Payment
TDS
Refund
Accounting & Reconciliation
Call Centre with IVR/log
Front Office-single window
Accounting
Front Office
Call Centre
•
•
•
•
•
Organization
Grievance &
Organization Restructuring
People Deployment
Outsourcing
Inquiry & Grievance Mgt
Electronic & Mobile (E & M)Communication
• Performance Indicators
•
Best Practice Study
Communication
Performance
Registration
Return
IT Policy
•
•
•
•
•
•
Registration
Return
Adjustment (TP/ITC/DTAA)
Return Scrutiny
Secure cyber space
Common Service Delivery
Access Points & Platforms
• Seamless Interoperability
28. FLOW CHART-PARTICIPATORY DEVELOPMENT
28
Desk review and field study
Problem Tree Analysis
Base line Survey
Strategy Development &
Finalization of Action Plan
Identification of Partners & Stakeholders
& Assign Role and Responsibility
Roadmap of End to End Participation
of Primary Stakeholders
Capacity Building, IEC Toolkits,
Dissemination by multimedia & Web
Implementation
M & E Index and Benchmark
assessment
Success and Lessons Learnt
Dissemination
