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- Created on 12 October 2014
(Image Courtesy: US GAO)
The over-reliance on tax incentives/tax expenditures as an instrument for guiding socio-economic development, coupled with their flawed implementation, has transformed it into a big mess across the world.
The muddle is manifested by complex tax regulations, tax disputes including litigation at the national and global level, crony capitalism and uncertain business environment across the globe. Instances of mess are aplenty as we will find later in this column.
And the mess is becoming messier with policy-makers focusing more on curbing clever use of multiple tax incentives instead of reducing them to bare minimum and aligning statutory tax rates with the effective tax rates.
The OECD-spearheaded Base Erosion Profit Shifting (BESP) action plan, General Anti-Avoidance Rules (GAAR), transfer pricing rules, Minimum Alternate Tax (MAT) and retrospective amendment to regulations are nothing but reactions to astute usage of tax incentives by the companies.
There would have been no need for such negative strategies and the resulting complexities had the Governments kept tax structure simple and free from clutter of tax incentives that are subject to many conditions and interpretations.
- Created on 31 March 2014
Image courtesy: IMF
Tax administrations (TAs) in all the countries especially in the developing ones are under eternal pressure to generate more revenue without hampering investment and growth. Their performance is also subject to periodic criticism, some justified and some reflecting lack of understanding of the nature of operations of TAs.
The enormity of criticism depends on the yardsticks, parameters and targets against which the performance is measured. If the performance evaluation is deficient, the ensuing tax reforms might also turn out to be sub-optimal. Hence the need for a multi-facet benchmarking of TA’s operations.
TAs’ performance comes under regular scrutiny of the country’s supreme auditor. Such audits are policy/target/issue specific.
They are certainly not holistic. Country-centric and subject-specific audits by respective supreme auditors thus make it difficult for analysts to compare TAs performance to identify factors that either drive or constrain the working of TAs.
Objective comparison of performance is also impeded by divergence of organizational structure and functional autonomy given to TAs across the globe. In certain countries, the revenue governance is looked after by a single entity. In others, this job is assigned to two or more entities. The autonomy given to TAs by political executive also varies from country to country.
Notwithstanding such limitations that make comparisons challenging, different entities have tried to benchmark TAs performance on the basis of specific parameters to underscore factors that help certain TAs to excel. Those factors can thus serve as package for tax reforms by other entities that score modest or low rankings.
As put by Benchmarking of Tax Administrations Report of the EUROSAI Study Group in March 2008, "Although it may be difficult to compare all aspects of a tax administration’s performance, benchmarking provides SAIs with an opportunity to highlight performance measurement good practice. Measuring performance should be based on systematic collecting of information."
McKinsey & Company thus found that TAs in 13 countries can collect an additional $ 86 billion by improving their efficiency across all the four functions that it focused on in its benchmarking study of tax administrations conducted in 2008-2009.
Read more: IMF standardizes benchmarking norms for Tax administrations
- Created on 18 December 2013
INDIA would have to subject itself to an acid test on countering Base erosion and profit shifting (BEPS) over the next two years after having committed to an action plan on this count as a G20 country. It is easy to sign a declaration at an international event. It is, however, difficult for India to unwind tax incentives without risking reduction in inflow of fresh foreign investments and flight of existing portfolio investments. This explains why India has been making half-hearted efforts since 1995 to convince Mauritius to amend the bilateral Double Taxation Avoidance Convention (DTAC).
Read more: India faces acid test on BEPS after G20 declaration
- Created on 03 November 2019
Bharat Ratna Atal Bihari Vajpayee laid foundation for telecom bail-outs
(Image Courtesy:PIB)
It is a tsunami of outcry and anguish over a very fair judgment delivered by the Supreme Court (SC). On 24th October 2019, SC upheld Department of Telecommunications (DOT's) definition of adjusted gross revenue (AGR).
What is there in the definition? Well, truckloads of money as was foreseen by Comptroller and Auditor General (CAG) way back in 2000.
The verdict requires telecom service providers (TSPs) to pay to the Government the disputed components of AGR along with interest and penalty as specified in licence agreements. The amount to be paid is estimated in the range of Rs 92,000 crore to Rs 1.4 lakh crore for last over 15 years.
Vajpayee Government trashed CAG’s concern over real and presumptive revenue loss recorded in its report numbered 7 of 2000. And there hangs the 20-year saga of telecom revenue leakages that should come under gaze after SC verdict. It has not gone into the issue of leakages that arise to under-reporting, misclassification and other misconduct. The judgment is limited to AGR definition.
In 2000, CAG also foresaw risk of repeat of the sob story in future. And the risk has recurred in past with telecom bail-outs & phased reduction in percentage of revenue that TSPs share with the Government. The bail-outs happened both under NDA and UPA. More recall of CAG & two other alarming reports later in this column.
The emerging headlines are similar to the ones that were splashed in late nineties. That created favourable ecosystem for BJP-led NDA Government to shower unprecedented favours on TSPs in 1999.
Read more: Lobbying for Dilution of Telcom Revenue Verdict Defies Hard Facts
