Some Specific Instruments for Increasing Tax Revenue- Dr Jha Ppt

7/29/2019 Some Specific Instruments for Increasing Tax Revenue- Dr Jha Ppt

1/16

Click to edit Master subtitle style

3/9/13

Praveen Jha (JNU)Pooja Rangaprasad (CBGA)

Prashant Prakash (CBGA)

Some Specific Instruments forIncreasing Tax Revenue


2/16

3/9/13

Property, Wealth andInheritance Tax- G20

CountriesTaxes on Property, according to the IMFsGovt. Financial Statistics (GFS) 2001,include:

i) Recurrent Taxes on immovable property

ii) Recurrent taxes on net wealth

ii) Estate, Inheritance and Gift taxes

iv) Taxes on financial and capitaltransactions

v) Other non-recurrent taxes on property

and


3/16

3/9/13

Indias total Property Tax revenue as % of

GDP is 0.08 which is the lowest among G20countries.

As % of total tax revenue, Property Taxcontributes only 0.4% of total tax

collections in India.

Other BRICS nations perform much betterin terms of contribution by Property Tax to

total tax revenue- Brazil (4.4 %), Russia(4.1 %), China (10.3 %) and South Africa(4.7 %)

Estate Duty or Inheritance Tax does not

exist in India (it had existed until1985) and


4/16

3/9/13

Taxes on immovable property andtaxes on financial and capitaltransaction are good sources of revenuein many G20 countries.

India performs very poorly in these areaswhen compared with other G20 countries.

UK and China have a one time non

recurrent property tax which mobilisesaround 1.0 % and 0.6 % of GDPrespectively, which is much higher thantotal property tax ratio of 0.08 % for

India.


5/16

3/9/13

Country

Year

Recurrenttaxesonimmova

bleproperty

Recurrenttaxes on

netwealth

Estate,inherita

nce, and

gifttaxes

Taxesonfinancialand

capitaltransactions

Othernon-recurre

nttaxes

onproperty

Otherrecurre

nttaxes

onproperty

TotalPrope

rtyT

ax

RevenueFran

ce2010

2.48

0.9

0.39

0.5

0 0 4.3

UK

2010

2.53

0 0.17

0.5

1 0 4.21

Canada

2010

2.85

0.2

0 0 0.4

0 3.54

US

2010

2.91

0 0.24

0 0 0 3.15

Argentina

2009

0.36

0.3

0 2.2

0 0.4

2.9

Japan

2010

2.69

Korea

2010

0.72

0 0.25

1.6

0 0.1

2.62

Australia

2010

1.16

0 0 1.2

0 0.1

2.47

China

2009

0 0 0 1.2

0.6

0 1.73

SouthAfrica

2010

0.97

0 0.04

0.4

0 0 1.39

Brazil

2010

0.45

0 0.05

0.1

0 0.6

1.25

Russia

2010

1.13

0 0 0 0 0.1

1.2

Ital

y

2010

0.71

0.

1

0.03

0 0 0 0.8

1

Germ

any

20

10

0.

38

0 0.

19

0 0

.2

0 0

.8

Turkey

2010

0.27

Mexico

2009

0.15

0 0 0.1

0 0 0.25

India

2009-10

0.08

0 0 0 0 0 0.08

*Source

Property Tax Revenue (as% of GDP)

Calculated by the authorusing;Government Finance Statistics 2011,IMFGovernment Finance Statistics 2010, CD-ROM, IMF

For India: India Public Finance Statistics 2011-12, Governmentof IndiaFor Mexico: Revenue Statistics 2011.

For Argentina and Brazil, Revenue Statistics in Latin America, 2011.OECD/ECLAC/CIAT


6/16

3/9/13

Under the existing law in India, the tax onwealth is levied at 1% above threshold of Rs.30 lakhs on specified unproductive assets.Productive assets, Companies and Non-profitOrganisations are exempted from wealth tax.

The number of dollar billionaires in India as

per the Forbes list has risen from 13 in 2003to 55 in 2011. The combined net worth ofthese 55 dollar billionaires stood at over $240billion in March 2011 (49th Report of theParliament Standing Committee on Finance,2012, Appendices I: Dissent Note).

According to another estimate India has atleast 8,200 ultra-high net worth individuals

worth at least US$ 945 billion (approximatelyRs. 47 25 000crore while the collection of


7/16

3/9/13

Country Year

Recurrent

Taxes on

Immovable

Property

Recurrent

Taxes on

Net

Wealth

Estate,

Inheritance

, and Gift

Taxes

Taxes on

financial

and capital

transactions

Other

non-

recurrent

taxes on

property

Other

recurrent

taxes on

property

Total

Property

tax

revenueUK 2008 10.9 0 0.73 2.2 4.3 0 18.1

France 2008 9.6 3.45 1.51 2 0 0 16.6

US 2008 15 0 1.21 0 0 0 16.2

Korea 2007 3.9 0 1.39 8.8 0 0.3 14.4

Canada 2007 9.5 0.67 0 0 1.2 0 11.8

Argentina 2008 1.5 1.3 0 8.8 0 1.6 11.6

China 2007 0 0 0 6.9 3.3 0 10.3

Australia 2008 4.2 0 0 4.5 0.1 0.2 8.9South Africa 2008 3.3 0 0.13 1.3 0 0 4.7

Brazil 2008 1.6 0.19 0.5 2.2 4.4

Russia 2008 3.9 0 0 0 0 0.3 4.1

Germany 2008 1.6 0 0.8 0 1 0 3.4

Italy 2008 2 0.17 0.08 0 0 0 2.3

Japan 2008 1.7

Mexico 2008 0.8 0.6 1.4Turkey 2010 1.3

India 2008 0.4 0.04 0.0002 0.4

Property Tax revenue (as %of Total Tax revenue)

Calculated by author using;

Government Finance Statistics 2010, CD-ROM, IMF

For India: India Public Finance Statistics 2010-11, Government of India

For Argentina and Brazil, Revenue Statistics in Latin America, 2011. OECD/ECLAC/CIAT

For Mexico: Revenue Statistics 2011. OECD

*Source


8/16

3/9/13

Securities Transaction Tax

The principle underlying SecuritiesTransaction Tax is to curb purely short-termspeculation by big operators, FIIs and fundmanagers without significantly affecting

the long-term investors.

Short-term trading is considered to be oneof the major factors responsible for marketvolatility and the STT ensures stability in

the financial markets.

Securities Transaction Tax reduced from0.125 % to 0.1 % in the Union Budget

2012-13


9/16

3/9/13

Plugging Loopholes inInternational Taxation

Plugging the Loophole in India-MauritiusTreaty: According to the tax treaty betweenIndia and Mauritius, a company resident in

Mauritius selling shares of an Indiancompany will not pay tax in India.

Since there is no capital gains tax inMauritius, the gain will escape tax

altogether.

With approximately 40 % of FDI equityinflows being routed through Mauritius, it is

important that this loophole is fixeddefinitively.


10/16

3/9/13

General Anti-Avoidance Rules (GAAR):Effective GAAR will ensure that the realintention of the parties and effect oftransactions and purpose of anarrangement is taken into account fordetermining the tax consequences,irrespective of the legal structure that hasbeen superimposed to camouflage the real

intent and purpose.

But will it affect FDI as claimed by industry?


11/16

3/9/13

GAAR- China as a case study

China Corporate Income Tax (CIT) lawintroduced GAAR in 2008 and a series ofcirculars in early 2009 to address taxavoidance, provide guidance on

implementation of provisions of double taxtreaties and plug loopholes for cross-bordertransactions involving non- residents

The GAAR provision states that tax

authorities can adjust arrangementsundertaken without reasonable businesspurposes that result in tax benefits. Theimplementation rules clarify that without

reasonable business purposes means any


12/16

3/9/13

The State Administration of Taxation (SAT),under the circular Guo Shui Fa (2209) No. 2(Circular 2), further clarified that GAAR willbe directed to transactions intended to

abuse tax incentives under the CIT Law,double tax treaties or corporateorganisation structures, or to avoid tax byusing tax havens.

the burden of proof is on the taxpayers toprove that GAAR should not apply to thearrangement. The initial proposal in Indiaalso had a similar feature, but was changed

under pressure from investors and the


13/16

3/9/13

Circular 601 issued in October 2009, the

Beneficial Ownership circular, clarifies thatagent or conduit companies do not qualifyas beneficial owners for DTA purposes(Chan, 2011).

This Circular is supported by Circular 12which laid out detailed requirements forapplications to be made to Chinese taxauthorities to obtain clearance for the

treaty benefits (Gu et al, 2011).Circular 698, also introduced in 2009,

emphasised the substance over formprinciple which ensures that GAAR will be

invoked if an intermediate holding


14/16

3/9/13

Circular No. Key focal point and description Issue date

Guoshuifa

[2010]

No. 75

Guoshuihan

[2009]

No. 698

Guoshuihan

[2009]

No. 601

Guoshuihan

[2009]

No. 507

Guoshuifa

[2009]

No. 124

Guoshuihan

[2009]

No. 395

Guoshuihan

[2009]

No. 81

Dividends:Provided criteria for compliance requirements, as well as necessary

supporting documents, for claiming tax treaty benefits on dividends.Feb-09

Details of the major circulars issued in China in 2009-2010

Source: Chan (2011)

Royalties:Specified the scope of royalties, provided the SATs current views on

differentiation between service fee receipts and royalties and listed certain non-

royalty payments. It also specified DTA royalty clauses applying to resident

beneficiaries only.

Sep-09

Documentation requirements on treaty benefit claims: Circular 124 clarified the

procedures and documentation requirements for non-residents seeking to enjoy tax

benefits provided by treaties on their PRC-sourced income (Treaty Benefits).

Aug-09

Residency:Requirement toprovidesamplesof official tax residentcertificatesof42

contract jurisdictions in order to facilitate the implementation of tax treatiesand

identification of tax resident status by local tax authorities

Jul-09

Comprehensivedocumentwithregardstogeneral applicationoftreatyarticles:The

comprehensive anddetailed implementation guidance for DTA articlesappliedthe

provisions of the China-Singapore DTA to DTAs in general. Circular 75 covered all

Jul-10

Capital gains:Provided guidance related to non-residents equity sales, aimingtostrengthen tax collection and administration on capital gains derived by non-

residents. Circular 698 emphasized the doctrine of substance over form and

stressed the SATs power to disregard structures if they were established for tax

Dec-09

Beneficial owner:Clarified the principlesof determinationof beneficial ownership

for intended tax treaty benefits by the tax authorities.Oct-09


15/16

3/9/13

Impact on FDI in China

As per UNCTAD World Investment Report2012, FDI flows to China reached a record

level of $124 billion in 2011.

The report also notes that transnationalcorporations rated China as the topinvestment destination for 2012-14, aboveUSA.

Where is the evidence that FDI will beaffected ifeffective anti-tax avoidance

measures will be introduced?


16/16

3/9/13

If India desires to improve its directtax share in revenues, then it needsto introduce higher marginal income

tax rates for individuals andcorporations, tax capital gainsprogressively, revamp its tax onproperty including tax on wealth andinheritance tax and fix loopholes ininternational taxation.

Some Specific Instruments for Increasing Tax Revenue- Dr Jha Ppt

Documents

Transcript of Some Specific Instruments for Increasing Tax Revenue- Dr Jha Ppt