TARC Recommends Impact Assessment
Improving the empirical basis for any decision on taxation - policy or administrative - through an analysis of its impact is a key function of a modern tax administration that aims to improve the process of decision making. Decision-making based on an empirical analysis of the positive and negative effects of a proposed measure or regulation helps ensure that the benefits of a tax action justify the cost of compliance imposed on taxpayers and the cost of administering such a tax.
EffectiveThe effective rate of taxation in the case of companies could be defined as the ratio of tax payable to the total profit before tax, expressed as a percentage. The difference between the effective rates of taxation and statutory rate of taxation is mainly on account of various direct tax incentives.e Tax Rate for Companies
The effective rate of taxation in the case of companies could be defined as the ratio of tax payable to the total profit before tax, expressed as a percentage. The difference between the effective rates of taxation and statutory rate of taxation is mainly on account of various direct tax incentives. These incentives reduce the amount of tax payable, lowering the effective rate of tax. The major tax incentives provided to the companies are -
(a) profit-linked deductions,
(b) deductions on scientific research,
(c) accelerated depreciation and
(d) investment-linked deductions.
It is these incentives that are primarily responsible for a low effective rate of taxation. The effective tax rate for FY2010-11 was 24.1 per cent and 23.9 per cent in FY2009-10, which were substantially lower than the statutory tax rate of 33.9 per cent. Two hundred sixteen companies with profits before taxes (PBT) of Rs. 500 crore and above accounted for 55.8 per cent of the total PBT and 53.4 per cent of the total corporate tax payable. Hence, there was slight regressivity among companies in their payment of corporate income tax.
Out of the entire revenue foregone, the largest portion is accounted for by profit-linked deductions, (Rs. 19,881 crore) and accelerated depreciation (Rs. 33,243 crore). Together, these amounted to Rs. 51,000 crore out of a total foregone revenue of Rs.57,000 crore. It needs to be pointed out that these work more to the benefit of larger companies in the corporate sector. This issue is proposed to be addressed in the Direct Taxes Code (DTC) by phasing out profit-linked deductions, and opting for investment-linked deductions. By its very nature, there cannot be a study of the 'projected revenue gain' after phasing out profit linked deductions. This is because growth of new businesses and expansion of existing businesses depend upon several inter-related macroeconomic factors such as GDP growth rate, demographics, exploitation and exploration of natural resources, general business climate, international business climate etc. from which isolating a specific direct tax measure and estimating its impact would not be a feasible exercise. However, as a rough estimate, it can be seen that the current effective tax rate of the corporate sector is about 24 per cent whereas the statutory rate is 30 per cent. Therefore, at the same level of corporate tax, if profit-linked deductions and accelerated depreciation were to be totally phased out, the rise in the effective tax rate would give some indication of whether the rise has been noticeable.
While the revenue forgone in the non-corporate sector has been going up, the revenue forgone in the corporate sector has come down from 58.35 per cent to 54 per cent over the period FY2006- 07 to FY20 10-11. Although the corporate sector has expanded manifold during these years, revenue growth from the sector has not increased proportionately as the statute is still riddled with exemptions/incentives given specifically to this sector.
Source- Third Report of the Tax Administration Reform Commission (TARC) (F. No. TARC/Report/36/2014-15 Dated 30.11.2014)
Service tax liability on Film Exhibitors – CBDT Issues Clarification
F. No. 356/25/2013-TRU
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
(CENTRAL BOARD OF EXCISE AND CUSTOMS)
TAX RESEARCH UNIT
NEW DELHI
MINISTRY OF FINANCE
DEPARTMENT OF REVENUE
(CENTRAL BOARD OF EXCISE AND CUSTOMS)
TAX RESEARCH UNIT
NEW DELHI
Dated: May 15, 2014
To
The Chief Commissioner,
Service Tax (Hyderabad Zone)
Basheer Bagh, L.B. Stadium Road,
Hyderabad–500004
Service Tax (Hyderabad Zone)
Basheer Bagh, L.B. Stadium Road,
Hyderabad–500004
Subject:- Service tax liability on Film Exhibitors – reg.
Please refer to your office letter C.No. IV/16/104/2013-STCC(HZ)/666 dated 02.04.2014 and 22.04.2014 on the aforesaid subject.
2. The issue regarding the levy of service tax on film industry with regard to the distribution and exhibition of films was examined by the Board and a Circular No.148/17/2011-ST dated 13.12.2011 was issued wherein it was specifically clarified that wherever distributors enter into an agreement with the exhibitor or theatre owner to share revenue or profit, a new entity emerges. The said new entity either in the form of Joint Venture (JV) or Association of Persons (AOP) will be recognized as a 'person' and any service provided to or by such JV/AOP will be liable to tax as in the case of any other independent person. As per the said circular:
• Where a theatre owner exhibits a movie on his account, the copyrights are temporarily transferred and the distributors (who transfer such copy rights) are required to pay service tax on copyright services.• Whereas if a theatre owner exhibits a movie on account of a distributor, either for a fixed consideration or on revenue sharing basis, service tax would apply in the category of renting of immovable property or business support service, as the case may be.
It has also been emphasized in the said circular that the taxability of the services involved in these transactions needs to be decided in view of the facts and circumstances of each case.
3. The activity of temporary transfer of copyright was given exemption with effect from 01.07.2012. Hence during the period after 01.07.2012, in cases involving temporary transfer of copyright, service tax is not leviable on the distributors/sub-distributors for providing such service. Moreover exhibitors/ theatre owners are also not leviable to service tax for exhibiting such movies on their own account under support service.
4. In case of revenue sharing arrangements between the theatre owners (service provider) and the distributors/sub-distributors/joint venture (service recipient), as the case may be, service tax will be leviable in accordance with the circular dated 13.12.2011.
5. In view of the above, for determining the leviability of service tax on film industry with regard to the distribution & exhibitions of the films, the facts and circumstances in each case should be examined in the light of circular dated 13.12.2011 and action taken accordingly.
7. This issues with the approval of Member (Budget).
(Dr Abhishek Chandra Gupta)
Technical Officer (TRU)
Technical Officer (TRU)
Kapoor Glass (I) Pvt. Ltd. (the Assessee) cleared the goods from the factory to their customers and recovered cost of insurance from them. In the lorry receipts, the freight was on to pay basis and the buyer of the goods were shown as the consignee. The Revenue alleged that since the Assessee has collected the insurance amount from the customers, the place of delivery should be deemed to be the customer's premises and therefore, duty demand was raised on the cost of insurance recovered from the customers.
Inclusion of Cost of insurance in Assessable Value for Excise Duty
Cost of insurance would not be part of the assessable value of the goods cleared to the customers from the factory gate when goods were consigned indicating that the consignee is the buyer and the freight is "to pay basis"
Commissioner of Central Excise, Belapur Vs. Kapoor Glass (I) Pvt. Ltd. [2014 (12)
TMI 491 – CESTAT MUMBAI]
Kapoor Glass (I) Pvt. Ltd. (the Assessee) cleared the goods from the factory to their customers and recovered cost of insurance from them. In the lorry receipts, the freight was on "to pay basis" and the buyer of the goods were shown as the consignee.
The Revenue alleged that since the Assessee has collected the insurance amount from the customers, the place of delivery should be deemed to be the customer's premises and therefore, duty demand was raised on the cost of insurance recovered from the customers.
However, the Commissioner (Appeals) relying upon the Judgment of the Apex Court in the case of Escorts JCB Ltd Vs. CCE, Delhi-II [2002 (146) ELT 31 (SC)]held that duty demand on the cost of insurance incurred by the Assessee is not admissible, in as much as the goods have been delivered at the Assessee's factory gate.
Being aggrieved the Revenue filed an appeal before the Hon'ble CESTAT, Mumbai.
The Hon'ble CESTAT, Mumbai after observing that the Department was unable to prove that the factory gate is not the place of removal, held that when the lorry receipts under which the goods were consigned indicate that the consignee is the buyer and the freight is on "to pay basis", duty demand on the cost of insurance incurred by the Assessee is not admissible, in as much as the goods have been delivered at the Assessee's factory gate.
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Once it is held that the shares held by the assessee as a stock-in-trade and the income whether directly or incidentally from holding of such shares as stock-in-trade, would be business income, then it cannot be said that the dividend income would fall as an income from other sources as contemplated under section 56 of […]
it is immaterial whether the shares are held by the appellant as stock-in-trade. The dividend income derived from these shares is specifically chargeable under the head "Income from other sources". Consequently, it is immaterial whether the appellant is a dealer or a trader and caries on business of purchase and sale of shares. We find […]
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