One of the major risk in the International Business is the payment of taxes in both the countries i.e. the country in which the business is actually effected and in the country where the MNC is having its head office. This type of double taxation will definitely impede the growth and development of the MNCs in multiple ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two countries through two types of relief namely Bilateral Relief and Unilateral Relief. Bilateral Relief Under this scheme, relief against the burden of double taxation is worked out on the basis of mutual agreement between two countries. There are two types of agreements. In one type, the two concerned countries agree that certain incomes which are likely to be taxed in both countries shall be taxed only in of them or that each of the two countries Continue reading
Business Taxation
Advantages of Value Added Tax (VAT)
In the advantages part we will first look after the broad coverage of VAT in the Indian market. Then we will consider the level of security the Indian VAT is having on our revenues. Obviously the selection of items to be covered by VAT in India will be given a bullet to think upon and at last we will check out the co-ordination VAT in India will be having with our existing direct tax system. 1) Coverage : If the tax is carried through the retail level, it offers all the economic advantages of a tax that includes the entire retail price within its scope, at the same time the direct payment of the tax is spread out and over a large number of firms instead of being concentrated on particular groups, such as wholesalers or retailers. If retailers do evade, tax will be lost only on their margins because Continue reading
Concept of Double Taxation
Double taxation is a situation that affects mainly multinational corporations when business profits are taxed at both the corporate and personal levels. The corporation has to pay income tax at the corporate rate before any profits are to be paid to shareholders. Profits are distributed to shareholders through dividends are subject to income tax again at the individual rate according to tax regime of the country. This way corporate profit are counted as twice income taxes. The outcome of double taxation does not affect smaller corporations, which can distribute the earnings straight to shareholders without the intermediate step of paying dividends. On the other hand, many other smaller corporations are able to avoid double taxation by distributing earnings to their employee or shareholders as wages. There are two types of double taxation: economical and juridical (international). Double economical taxation is related to the taxation of two and more taxes from Continue reading
Theories of Taxation
Attempts to provide a theoretical grounding to the practice of taxation are reflected in various theories of taxation, the evolution of which took place together with the development of various directions in economic thought. Classical Taxation Theory For a long time, the classical taxation theory was of most importance. As a result, taxation was only granted the fiscal role of providing state revenues. A. Smith is considered to be the father of the scientific taxation theory. In his monograph “An Inquiry into the Nature and Causes of the Wealth of Nations” Adam Smith gave a definition of the taxation system, indicating the main conditions for its formation and putting forward four main taxation principles: equity, determination, convenience and thrift of taxation administration. Smith’s work was developed later on by D. Ricardo, J. Mills, and W. Petty. All the theoretical deliberation and scientific debates of those years were focused on one Continue reading
Functions of Taxation
Taxes are a defined as mandatory payments of the contributors to the budget and to the extra-budgetary funds in the amount determined by law and within the stipulated deadlines. The functions of taxes are a manifestation of their essence; they are a means to represent the characteristics of taxes. The functions of taxation illustrate its social purpose of the value-based distribution and redistribution of income. Each of the functions fulfilled by the taxation instrument is a manifestation of an internal feature, an indicator or trait or this economic category. There are five main functions of taxation: fiscal, redistributory, regulating, controlling, and promoting. 1) The main function of taxation is the fiscal one. It is through fiscality that taxes play their role in the formation of the state budget necessary for the realization of national and holistic state programmes. The fiscal function provides for the achievement of the main social goal Continue reading
Residential Status and Tax Liability in India – Income Tax Basics
The scope of total income is determined on the basis of residential status of the assessee. For the purposes of Income Tax Act, there can be three residential status. Residential status is determined on the basis Basic conditions and Additional conditions Resident and ordinarily resident Resident but not ordinarily resident Non resident. RESIDENTIAL STATUS OF AN INDIVIDUAL Resident and Ordinarily Resident [ROR] An individual is said to be resident in India if he satisfies anyone of the basic conditions and both of the additional conditions. Resident but Not Ordinarily Resident [RNR] An individual is said to be resident but not ordinarily resident in India if he satisfies anyone of the basic conditions but does not satisfies both of the additional conditions. Non Resident [NR] If an individual does not satisfies any of the basic conditions he is said to be non resident in India Basic conditions Additional conditions A stay Continue reading