Business Taxation

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.… Read the rest

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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.… Read the rest

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Minimum Alternative Tax (MAT) and Computation of Book Profits

Provisions of MAT for payment of tax by certain companies (Section 115JB]

Tax payable for any assessment year cannot he less than 15% of book profit: Where in the case of a company, the income-tax payable on the total income as computed under the Income-tax Act, is less than15% of its book profit, such book profit shall be deemed to be the total income of the assessee and the tax payable by the assessee on such total income (book profit) shall be the amount of the income-tax at the rate of 15%.

Allowing tax credit in respect of tax paid on deemed income under MAT provisions against tax liability in subsequent years (Section 115JAA]

Where any amount of tax is paid under section 115J B (1) of Income Tax Act by a company for any assessment year beginning on or after 1-4-2006, credit in respect of the taxes so paid for such assessment year shall be allowed on the difference of the tax paid under section 115J8 of Income Tax Act and the amount of tax payable by the company on its total income computed in accordance with the other provisions of the Act.… Read the rest

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Sales tax provisions relevant for leasing

The major sales tax provisions relevant for leasing are as follows:

  1. The lessor is not entitled for the concessional rate of central sales tax because the asset purchased for leasing is meant neither for resale nor for use in manufacture. (It may be noted that if a firm buys an asset for resale or for use in manufacture it is entitled for the confessional rate of sales tax).
  2. The 46th Amendment Act has brought lease transitions under the purview of ‘sale’ and has empowered the central and state government to levy sales tax on lease transactions. While the Central Sales Tax Act has yet to be amended in this respect, several state governments have amended their sales tax laws to impose sales tax on lease transactions.
… Read the rest
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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.… Read the rest

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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.… Read the rest

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