Foreign non-resident business entities may have business activities in a variety of ways. In its simplest form this can take the form of individual transactions in the nature of exports or import of goods, lending or borrowing of money, sale of technical know how to an Indian enterprise, a foreign air-liner touching an Indian airport and booking cargo or passengers, etc. various tax issues arise on accounts of such activities. The government wants to encourage foreign enterprises to engage in certain types of business activities in India, which in its opinion its desirable for achieving a balanced economic growth. This takes us to the last aspect of activities which enjoy tax incentives in India. The related issues about the taxation of the Multinational Corporations (MNCs) are as follows: 1. Taxation of Transactions and Operations of MNCs in India Taxation of transactions and operations of MNCs fully depends on the definition Continue reading
Business Taxation
Reasons for the preference of VAT over Sales Tax
While theoretically the amount of revenue collected through VAT is equivalent to sales tax collections at a similar rate, in practice VAT is likely to generate more revenue for government than sales tax since it is administered on various stages on the production — distribution chain. With sales tax, if final sales are not covered by the tax system e.g. due to difficulty of covering all the retailers, particular commodities may not yield any tax. However, with VAT some revenue would have been collected through taxation of earlier transactions, even if final retailers evade the tax net. There is also in-built pressure for compliance and auditing under VAT since it will be in the interest of all who pay taxes to ensure that their eligibility for tax credits can be demonstrated. VAT is also a fairer tax than sales tax as it minimizes or eliminates the problem of tax Continue reading
Tax Accounting of Different Business Structures
Taxation is a source of government revenue collected through levying or imposing charges on corporate organizations and citizens of the country. The government may use taxation to encourage or discourage the country’s economic decisions. Taxation has several principles that guide the government when formulating its tax regime. The first principle is the principle of broad-basing, which requires that taxes are spread across every sector of the country’s economy and among all citizens. The principle of adequacy requires that taxes collected should be enough to cater for the provision of public goods and services. The principle of equity states that taxes should be distributed equitably to individuals and corporate companies, which have the same economic state. Last but not the least is the principle of neutrality, which states that no sector of the economy or individuals should be given an undue advantage over another. Taxation and Accounting of Partnership Companies Partnership Continue reading
Nature and Evaluation of Service Tax
Nature of service tax As per section 65 (95) of finance act , 1994 ,’sevice tax ‘ means tax leviable under the provision. Section 66 of Finance Act, 1994 is the charing section of service tax. Section 66 provides that there shall be levied a tax (service tax) @12% of the value of taxable service referred to in various clauses of section 65(105).It will be collected in a manner as may be prescribed. Though the tariff rate is 12%, the effective rate is 10% w.e.f 24-2-2009.Thus; total service tax payable is 10.30%w.e.f.24-2-2009. In respect of each type of service , it is necessary to determine two things namely (a) Taxable Service and (b) Value of taxable service. Taxable Service — As per section 66 of Finance Act, 1994, service tax is payable on taxable service. Service 65(105) of Finance Act 1994 defines what “taxable service” is. The definition Continue reading
Disadvantages of Value Added Tax (VAT)
1) VAT is regressive: It is claimed that the tax is regressive, i.e its burden falls disproportionately on the poor since the poor are likely to spend more of their income than the relatively rich person. There is merit in this argument, particularly if it attempts to replace direct or indirect taxes with steep, progressive rates. However, observation from around the world and even Guyana has shown that steep tax rates lead to evasion, and in the case of income tax act as a disincentive to effort. Further, there is now a tendency in most countries to reduce this progressivity of taxes as has been done in Guyana where a flat rate of income tax has been introduced. In any case VAT recognises and makes room for progressivity by applying no or low rates of tax on essential items such as food, clothes and medicine. In addition it allows for Continue reading
Five Reasons that Contribute to Non Compliance with Tax Laws
Non compliance of tax laws can be said to be a failure, intentional or unintentional, of taxpayers to meet their tax obligations. This lack of compliance can be as a result of different factors as indicated below: A Rising or High Tax Burden: Individuals and organizations will tend to be non compliant to tax laws when the taxes are deemed to be high as compared with the cost of living. In such a case taxpayers will tend to avoid payment of taxes so as to have a sizeable amount of money to be used in the purchase of different commodities. Lack of Knowledge on Tax Laws: This point focuses on the unintentional failure of a taxpayer to comply to tax laws. An example would be a small or medium enterprise that does not know that it is required by law for their businesses to be registered and as such pay Continue reading