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Tax governance challenges and potential _ Jena
 

Tax governance challenges and potential _ Jena

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    Tax governance challenges and potential _ Jena Tax governance challenges and potential _ Jena Presentation Transcript

    • CHALLENGES & POTENTIAL OF TAX GOVERNANCE 4 DEVELOPING COUNTRIES IN THE FACE OF NEO-LIBERAL GLOBALIZATION Chidananda Jena Email: chidananda.jena@gmail.com Skype/ YM: chidanandajena
    • WENDELL HOLMES ONCE SAID "WITH TAXES, I BUY CIVILISATION". IT MEANS THAT TAXES ARE THE COST PAID FOR LIVING IN A SOCIETY AND FOR BEING A PART OF CIVILISATION. Source: Kelkar Committee Report on Tax Reform Chidananda Jena Email: chidananda.jena@gmail.com Skype/ YM: chidanandajena
    • CHALLENGES Chidananda Jena Email: chidananda.jena@gmail.com Skype/ YM: chidanandajena
    • TAX GDP RATIO WORLDWIDE 4 Tax GDP Ratio 2012 by Heritage Foundation Canada 32.2 Mexico 29.7 USA 26.9 Australia 30.8 Japan 28.3 New Zealand 34.5 Denmark 49 France 44.6 Germany 40.6 Italy 42.6 Netherland 39.8 UK 39 OECD Un-weighted Average 34.8 Argentina 37.2 China 17 India 17.7 Russia 36.9 Source (wikipedia)
    • INDIAN TAX DISTRIBUTION 5 All India Tax Distribution 2012-13 ($/Rs conversion at 12-13 level apx) in Bn $ figures are approximations ($1=$ 50) % of PAN India Tax Corporate Tax 70.34 21.53% Income Tax 38.26 11.71% GoI Direct Taxes 108.61 33.24% Customs 32.97 10.09% Union Excise 34.40 10.53% Service Tax 26.54 8.12% GoI Indirect Taxes 93.91 28.75% Total Govt of India Taxes 207.61 63.55% State share transferred 58.81 18.00% Balance tax with National Govt 148.42 45.43% VAT of State 74.51 22.81% State Own Tax Revenue (mostly Indirect) 124.18 38.01% Total Tax at the disposal of State 182.99 56.01% PAN India Total Indirect Tax 218.09 66.76% PAN India Total Tax 326.69 100.00%
    • INTERNATIONAL TAX DISTRIBUTION 6 Comparison of OECD Countries in % of total Tax (Aproximately) Mexic USA Canada o Personal Income Tax Corporation Tax UK EU Japan (some OECD German (unweigh Austral taxes (unweig y France Finland ted) ia missing) hted) 35.3 34.6NA 28.7 23.9 17.5 31 25 38.5 17.5 24.9 8.1 10.4NA 7.8 3.5 5.7 7.7 8.1 16.7 13 9.3 Social Security Contribution 26.4 17.5 18.7 18.5 40.5 40.2 26.7 29.8 5.6 18.5 27 Direct Tax from earning 69.8 62.5 18.7 55 67.9 63.4 65.4 62.9 60.8 49 61.2 Property Tax 12.1 1.6 11.9 2.4 7.3 2.3 5.4 9.5 10.3 5.6 Goods & Service Tax 18.2 26.1 52.5 32.7 29.4 25.5 32 30.4 29.7 20.3 32.1 8.4 15.1 19.4 19.8 17.9 16.8 19.4 18.9 13.7 9.5 18.9 Consumption Tax (in GST) 10 Source: Tax Reform Trend in OECD Countries; Centre for Tax Policy & Administration, OECD
    • WELFARE DEAD WEIGHT LOSS 7 HARBERGER’S TRIANGLE
    • TREND in TAX REFORM 8  Increase Tax Base & Reduce Tax Rate  Reduction of Exemption & Deduction Growth with increase in horizontal & vertical Equity Reduce Compliance Cost & Administrative Burden Reduce Discretion & Corruption Voluntary Compliance & Self Assessment Heavy penalty for non-compliance & evasion Removal of ambiguity used for tax avoidance      
    • CUSTOMS 9       WTO guides Customs duty reform for level playing field WTO allows discrimination by way of MFN-Scope for misuse Anti dumping duty - (Adjustment equivalent to TP) Fast Track Clearance Scheme not in vogue-Delay persists Multiple tax rates persists for closely related items Exemptions persist-Scope for misuse
    • VAT/ GST 10      Self declaration of Tax Payer ITC (Input Tax Credit)/Elimination of Cascading – Scope for misuse Principles of Subsidiarity in levying VAT/GST Multiple tax rates persists for closely related items Exemptions persist-Scope for misuse
    • OTHER REVENUES 11        Land Revenue- Small in comparison to administrative cost Transport, Excise- can be integrated with VAT/GST Mining Royalty- Small in comparison to profit of the miners Property Tax- Commensurate with income from property in urban areas Carbon Credit – Back to back pass on to local governments Green Tax – Environment Justice Devolution of taxation powers to local governments
    • EQUITY through DIRECT TAXATION 12     Income= Consumption + Change in net worth  Progressive higher taxation on higher earnings Income tax on individual income leads to corporatization and avoidance of distribution of profits to shareholders- to take profit out in course of capital gains To prevent this corporate tax on profit of corporation is required. However, this leads to double taxation, when dividends are taxed again under income tax This creates bias for debt financing Maximum scope for tax avoidance
    • Act!onaid Research on MNEs Tax Avoidance 13           Tax Holidays & Incentives Investment on Capital Assets – Tax deduction Incentives for domestic small firms availed by MNEs Reshuffling Ownership (Dividend), Thin Capitalization, Royalty, Management Fee Lower Sale Price by subsidiary to AEs in low tax countrywhich in turn sells at much higher price Shipping Goods through MFN treaty countries (Customs) Treaty Shopping-Shell Companies Regional Cooperation to avoid Tax War, GAAR Tax Havens & Developed Countries amend tax policy MNEs Publish Tax Policies
    • DEVELOPED Vs DEVELOPING 14         Issue of Developed Vs Developing Challenges of Standard Tax Jurisdiction Vs Low/ No/ Privileged Tax Jurisdiction Most Tax Havens are under the control of West Information from Tax Havens not accessible OECD Guidelines favors developed UN Guideline favors developing Developing Countries are NET IMPORTING CountriesGoods, Service and Capital Developing Countries are financer of Developed Economy
    • Scope for Profit Shifting 15           Residence Vs Source Transactions modify classification of Income Permanent Establishment (PE) Income from Immovable Property Business Profit Income from Shipping, Inland Transport, Aircraft Dividend Branch Profit Tax Interest Royalty
    • Scope for Profit Shifting 16          Capital Gain Capital Independent Personal Services Dependent Personal Services Employee Stock Options Directors’ Fees Artistes and Sports Persons Star Companies Pension & Social Securities Pension
    • REVIEW of ACCOUNTs, POLICY & JUDGEMENTs 17            Obtaining Tax Returns using Information Act Obtaining accounts available on public domain Obtaining information from AEs from other nations Profitability of the firm and price of the product compared globally- EPS, OPM, NPM, Quick/ Debt Equity ratio etc. Profitability Comparison of Domestic Vs MNEs Benefit to GDP Vs perceived Tax Avoidance Macro-Economic Indicators-Short Term and Long Term Impact Preparing report and submitting to MNE for clarification purposes Publishing reports along with answers of MNEs Watch on Tribunal and Court Decisions Review of DTAAs and Laws on real time basis
    • ACCOUNTING STANDARDS for IT/ TP 18      IFRS, US GAAP or National GAAP Standards are prescribed keeping shareholder’s interest in view Does not disclose separately itemized ITs as shown in previous slides Does not disclose TP Standards need to be prescribed keeping double taxation and non taxation in view
    • POTENTIAL Chidananda Jena Email: chidananda.jena@gmail.com Skype/ YM: chidanandajena
    • INTERNATIONAL STANDARDs 20     Transfer of technology & Capital to developing nations Protect MNEs from double taxation National Standards- Brazil, India Avoidance of Double Taxation/ No Taxation  UN Model- Bilateral  OECD Model-Bilateral  Information Exchange and Action  MCMAATM (OECD)-Multilateral  UN Model -Bilateral
    • INTERNATIONAL BODIES 21      EU automatic information exchange (AIE) Foreign Account Tax Compliance Act (FATCA)- financial institution offers significant cross-border bank services EU Savings Tax Directive (EUSTD)- 17 European nations as well as several BRICs (Brazil, Russia, India, China)-financial intermediaries, but not shell Cos Need of an organization like INTERPOL to track Capital and Profit Shifting, Treaty ShoppingInternational Tax Service (INTAS) Need for International Tax Reallocation Agency
    • SAFE GUARDS for ALL 22       Transfer Pricing on Arm’s Length Principle Safe Harbor Minimum Alternative Tax (MAT)-Domestic Tax India Presumptive Tax (PT)-Domestic Tax equivalent to SH Advance Transfer Pricing Agreement (APA) Mutual Agreement Procedure (MAP)
    • ANTI AVOIDANCE PROVISIONs in DTAA 23        Look-Through” Provision Force of Attraction Subject-to-Tax Provision General Bona Fide Provision Activity Provision Stock Exchange Provision Alternative Relief Provision
    • SPECIFIC ANTI ABUSIVE RULEs 24        Misuse of Most Favored Nation(MFN) agreements to avoid customs duty Controlled Foreign Corporations Rule-conduits Foreign Investment Fund Rule-avoidance of tax on investment income Thin Capitalization Rule Exit/ Departure Tax Rules- change of residence before realization of treaty exempt capital gains Dividend Stripping Rules-transfer dividends to treaty exempt capital gains Transaction in securities leading to indirect transfer of assets-look through provision - Vodafone-hutch case led to retrospective amendment
    • AREAS OF BPR & POLICY RECOMMENDATIONS 25 • Business Intelligence Parameters • Audit/Assessment • Enforcement-GIS tracking • Advance Ruling & Alternate Dispute Resolution Audit • Appeal Management System Intelligence Appeal Payment Refund • • • • • • Payment TDS Refund Accounting & Reconciliation Call Centre with IVR/log Front Office-single window Accounting Front Office Call Centre • • • • • Organization Grievance & Organization Restructuring People Deployment Outsourcing Inquiry & Grievance Mgt Electronic & Mobile (E & M)Communication • Performance Indicators • Best Practice Study Communication Performance Registration Return IT Policy • • • • • • Registration Return Adjustment (TP/ITC/DTAA) Return Scrutiny Secure cyber space Common Service Delivery Access Points & Platforms • Seamless Interoperability
    • E-GOV FRAMEWORK: PEOPLE ORIENTATED ARCHITECTURE 26
    • PEOPLE PARTICIPATION 27 Empower Collaborate Involve Consult Inform Source:IAP2-International Association for Public Participation
    • FLOW CHART-PARTICIPATORY DEVELOPMENT 28 Desk review and field study Problem Tree Analysis Base line Survey Strategy Development & Finalization of Action Plan Identification of Partners & Stakeholders & Assign Role and Responsibility Roadmap of End to End Participation of Primary Stakeholders Capacity Building, IEC Toolkits, Dissemination by multimedia & Web Implementation M & E Index and Benchmark assessment Success and Lessons Learnt Dissemination
    • CB-CM & PM: INTEGRATED APPROACH 29 Source: NISG
    • MONITORING & EVALUATION 30 Assess Capacity, Resources & Infrastructure PostImplementation Phase Measure SLA, Awareness, Customer Satisfaction Implementation Phase Track progress, Milestones, Fund Utilization, Achieveme nts & Risks
    • Chidananda Jena Email: chidananda.jena@gmail.com Skype/ YM: chidanandajena