The Ghost of Tax Terrorism busted.

The hook or crook way of collecting taxes by the government can be called as Tax Terrorism.

Let us begin with some examples.

1) The government  slapped a Rs 13,000-crore tax demand on Vodafone.

2) Another case involving ‘Shell’; Indian Govt slapped a notice to pay a tax worth 11,000-crore. Similar cases were on Nokia and few other MNCs, against which investors have complained.

So what’s the big deal? They may have evaded taxes and hence are being fined now – can be your argument. However that’s not the case.

Let us see what is the scenario in India.

Indian government imposes taxes on individuals and firms to generate revenue. And this revenue is used by the government to fund its own running expenses and to carry out development work in the country. While the government’s intent is to maximize revenue, these companies look for lower rate of taxation and rules that are easy to comply, while in India, there are ever changing tax rates and tax rules are frequently mended to our ease which causes inconvenience for these companies. The above mentioned cases – notice was sent to them through a retrospective tax law blaming them of transfer pricing orders

Transfer pricing is the practice of arm’s length pricing for transactions between group companies based in different countries to ensure that a fair price—one that would have been charged to an unrelated party—is levied.

The Government of India in the Finance Act, 2012 retrospectively amended the Income-tax Act, 1961. This kind of taxation policy where the government arbitrarily changes tax laws and rate of taxation, is termed as the tax terrorism.

These cumbersome tax laws can discourage businesses as they will not be able to plan properly before making real investments in plant and machinery.

Well this not restricted to the MNCs alone, the various number of taxes present for the individuals is also a matter of concern. We pay service tax, VAT, Cess, Surcharge, inter-state tax, income tax, toll tax, profession tax what not? Uff!

All these taxes not only just confuse the consumer but also disturb his savings, investments and spending habits ultimately leading to finding ways of evading taxes.

So how could we bust this tax terrorism?

In today’s world, like water flows where it is easier for it go, avoids blockages, similarly Capital flows where it is relatively easier to do business and avoids the places where such legal complications arise. Therefore, investments will happen in countries where, among other things, rate of tax is lower and rules of the game are not changed retrospectively. (Imagine if you were given out for the game played 2 years ago when you handled a ball and it was not a way to be given out then)

 

For these, what we could is

  • Introduce one single, effective and unavoidable mechanism of GST across all sectors.

This is not so easy as said; so lets see the bottlenecks in implementing the GST in the next post. Do follow the blog for articles.

The point is being made because it was one of the poll promises of BJP, and now with Make in India slogan in order to get investments we need to implement this first. While no major reform has been seen from NDA govt. yet and we all know the CEO of the MNCs won’t work on sentiments.

 

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