Tax avoidance and tax evasion

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presented by , nikhil mapare (B.E MBA) Tax Avoidance And Tax Evasion

INDIAN TAX SCENARIO : 

INDIAN TAX SCENARIO The country has over 4.50 lakh registered corporate bodies of which only 50,000 corporate pay taxes. A simplistic interpretation of this could either mean that these are inefficient corporates or there is income being concealed.

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POINTS TO PONDER ….. What are you doing ? : Business Pay Professional Tax What are you doing in Business ? Selling the Goods Pay Sales Tax From where are you getting the Goods ? From Abroad / Other States Pay Customs / Octroi What are you getting by selling the Goods ? Profit Pay Income Tax How do you distribute profit ? By way of dividend Pay Dividend Distribution Tax Where do you manufacture the Goods ? In a Factory Pay Excise Duty

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POINTS TO PONDER ….. Do you have Office / Warehouse ? Pay Municipal Tax Doing Business in Millions ? Yes Pay Turnover Tax Are you taking out more than Rs 25,000 Cash from Bank ? Pay Cash Withdrawal Tax Where are you taking your client for lunch and dinner ? Pay Food & Entertainment Tax Are you going out of station for business ? Yes Pay Fringe Benefit Tax No Pay Minimum Alternative Tax

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POINTS TO PONDER ….. Are you giving or taking any Services ? Pay Service Tax To reduce tension where are you going ? To a Cinema Pay Entertainment Tax Delayed in paying Tax ? Pay Interest & Penalty

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Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law. Tax Evasion is the general term for efforts to not pay taxes by illegal means.  Tax planning is a process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions so that taxes are eliminated or reduced.

Reducing taxable income : 

Reducing taxable income The primary way to reduce the part of your income that is subject to tax is to take full advantage of all available tax deductions, both business and personal. In order to do this, you must become aware of what is deductible and what isn't, and the special rules that apply to certain types of deductions such as meals and entertainment, automobile expenses, and business travel. In many cases a business owner can deduct benefits that would otherwise be classified as nondeductible personal expenses.

Reducing tax rate : 

Reducing tax rate Although you can't literally lower your tax rate, there are certain actions you can take that will have a similar result. Shifting income from a high-tax-bracket taxpayer (such as yourself) to a lower-bracket taxpayer (such as your child). If you have a small business, you can make one or more children part-owners of your small business, so that net profits of the business are shared among a larger group.

Transfer pricing : 

Transfer pricing If a firm can shift profits to a low-tax jurisdiction from a high-tax one, its taxes will be reduced without affecting other aspects of the company. Which in turn affects revenues, but it is this artificial shifting of profits. Example: If a patent developed in the U.S. is licensed to an affiliate in a low-tax country (such as one in Ireland) income will be shifted if the royalty or other payment is lower than the true value of the license.

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REASONS FOR TAX EVASION Rampant Corruption in Tax Department Tax Deductions offering loopholes to tax evaders Absence of Social Security System Weak Surveillance System Complicated Tax Laws and Filing Mechanism Tax Rates are too high Lack of Transparency in Government Expenditure

Tax Havens : 

Tax Havens A tax haven is a country or territory where certain taxes are levied at a low rate or not at all.

Countries Listed on Various Tax Haven Lists : 

Countries Listed on Various Tax Haven Lists Caribbean/West Indies - Anguilla, Antigua and Barbuda, Aruba, Bahamas, Islands, Cayman Islands, Dominica, Grenada. Coast of East Asia - Hong Kong, Macau, Singapore. Europe/Mediterranean- Andorra, Gibraltar, Isle of Ireland, Liechtenstein, Luxembourg Malta, Marino, Switzerland Indian Ocean- Maldives, Mauritius, Seychellesa. Middle East- Bahrain, Jordan, Lebanon. North Atlantic- Bermuda Pacific, South Pacific- Cook Islands, Marshall Islands, a Samoa, Nauru, West Africa - Liberia

Tax Evasion Practices : 

Tax Evasion Practices Under-reporting; Bribery of tax officials; Refusal to pay; Lobbying of governments to reduce tax liability or effective incidence of tax system; Lobbying by multinationals of ‘home’ country governments to pressure ‘host’ country governments to the same effect; or Lobbying via international institutions (IMF, World Bank, WTO) to achieve similar effects.

Governments efforts : 

Governments efforts 2% MAT on gross assets could end up to be as much as or even more than 25% of the profit of a company. Moreover, they say companies in sectors with a long gestation period like infrastructure would have to end up paying the tax even if they make a loss. Offshore mergers and acquisitions could come under the domestic tax net, with the government mulling ways to block companies from using the shell company route to ward off revenue officials.

Government efforts to minimize evasion : 

Government efforts to minimize evasion Since 1991, the tax structures have been considerably rationalized and the process is still continuing. Most commodities are now charged to the median rate of 16% excise duty. The customs duty rates have also been drastically pruned, with only 12.5% as the 'peak rate' of customs duty.

Expenditure tips : 

Expenditure tips See that credit card expenses do not cross Rs 16,000 a month. An annual expenditure of more than Rs 2 lakh in a year can result in an inquiry. Here's a tip: Get a add-on card for your spouse/ family member. The expenses, thus, get spread out. If you plan to buy shares, do not spend more than Rs 8,000 a month on them. If you are careful and follow this, you will most likely not be investigated by the tax authorities. Buy immoveable property worth Rs 29 lakh, not Rs 30 lakh. Buying property worth Rs 30 lakh and above could entail an investigation. Opt for gold jewellery, semi-precious stones and silver utensils valued at Rs 14 lakh and no prying questions on wealth tax are hurled.

Expenditure tips : 

Expenditure tips A man can also own gold. He can hold 100 grams of the shining metal. A married woman can safely have 500 grams of gold and an unmarried girl may hold 250 grams of gold. An electronic gadget with Rs 25,000 or more always raises suspicions. Keep loan papers ready if you have borrowed money or show evidence that the big buy was made out of disclosed income. Regarding wedding expenses, if you are able to prove that money is being spent out of income received on wedding occasion under Section 56 (2) (v), then income tax clauses are not attracted. By taking a joint loan, like a housing loan for example, with your spouse, expenses can be shown by both the wife and the husband in their returns.

Expenditure tips : 

Expenditure tips Income tax returns like Form 2 F ask for household expenses. But, remember, details are not necessary. If your wife is working, many expenses can be shown in her return statement. Household expenses from dishwashers to monthly provisions may be covered under this. Show a proper balance between income and expenses. If you have bought an air-conditioner, costing, say, Rs 15,000 and your income is Rs 20,000, an explanation may be required. But if you saved Rs 5,000 every month for three months, put them in a bank and then bought that consumer durable, tax quizzing can be escaped because then you are ready with your documentation.

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RECOMMENDATIONS FROM ECONOMISTS The peak rates need to be brought down from 33% to 15% Increase the width, not the depth Rich farmers and Software Companies need to be brought into the tax net The exemptions need to be done away with and tax compliance made simpler The punishments need to be more drastic and strictly enforced The Government needs to keep away from Amnesty Schemes

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THANK YOU nikhil mapare9960889455