Tax Heaven and Taxation Terms Flashcards
Tax Heaven
A tax haven is a country or territory where certain taxes are levied at low rate or nor at all.
Individuals and companies find it attractive to move themselves to areas with reduced or nil taxation levels.
Features of tax havens
Nil or nominal taxes
Lack of effective exchange of tax information with foreign tax authorities, that is personal finance information is not shared
No requirement for substantive local presence
Self promotion as an offshore financial center.
Steps taken by OECD and G20 against tax havens
- Many countries like switzerland, singapore, cayman Island are blacklisted by OECD and threatened with punitive financial retaliation for their banking secrecy
- Sanctions being considered by G20
a. Scrapping of tax treaty arrangements
b. Imposing additional taxes on companies that operate in non-compliant countries
c. Tougher disclosure norms
Tax Expenditure
Revenue foregone as a result of exemptions and concessions
Justification:
- Regional growth balance
- Disposal of industries
- Neutralization of disadvantage on account of location
- Incentive to priority sector
Problems:
- Distort resource allocation and stunt productivity
- Lobbying
- Not rationalized
Note: sun set clause
Tax Incidence
Entity on which tax is imposed.
Tax Burden
Person where the buden of tax is felt and cannot be transferred elsewhere
Tax Base
Range of goods, services and income
Tax shelters
Any technique which allow a person to legally reduce or avoid taxes
Tax avoidance
TA means using the loopholes in the tax law to avoid /reduce tax burden
It’s legal but not advisable
Tax evasion
TE involves breaking the law, non-reporting, claiming unauthorized deductions.
Illegally reducing tax burden by deflating income or inflating expenses
Tax Planning
TP is the art of reducing tax liability by using various provisions of law.
Hidden Taxes
Implicit taxes. Hidden in price. The most well known form of HT are indirect taxes.
Progressive Tax
Tax rate increases as income increases. India has progressive taxation
Regressive tax
Tax rate decreases as income increases
Specific Duty
Taxation based on weight or quantity
Ad valorem
Taxation based on value added
Compund Dutues
Combination of value and other factors, based on which tax is imposed
Excise Duty
Tax on manufacture and is levied on manufacturer of goods within the country
Negetive Income Tax
Subsidy. It is a taxation system in which people below poverty line are given financial assistance
Pigovian tax
Imposed on goods having negative externalities.
Octroi
Tax on entry into local area.
Criticisms: Obsolete, time waste
Tax Buoyancy
% change in tax revenue with change in GDP. Due to change in base
Tax Elasticity
% change in tax revenue due to change in tax rate
Tax Stability
No frequent changes and continuity of policy in a predictable and transparent manner.
Tobin Tax/Robinhood Tax
also known as financial transaction tax(FTT)
on foreign exchange transactions. To prevent exchange rate volatility, macroeconomic stability, revenue for exchange rate stabilization, revenue for development. India does not support it.
Minimum Alternate Tax (MAT)
Tax on book profit. Many company shows book profit but zero taxable income.
Presumptive Tax
Presumptive=> Minimum income. Because they don’t maintain books like local lala.
Introduced in 1990 but withdrew later.
Laffer Curve
Inverted U curve. Relationship between tax rate and tax collection
Inverted Duty Structure
Higher import duty on raw material than finished products, Makes exports uncompetitive.
FTA also leads to a new type of IDS as finished products have low import duty.
