Daily Current Affairs : 26-October-2023
Tax evasion is a serious issue that affects governments worldwide. It occurs when individuals or companies avoid paying their fair share of taxes through illegal means. The European Union Tax Observatory’s ‘Global Tax Evasion Report 2024’ delves into this problem, shedding light on measures to combat tax evasion and the Global Minimum Tax (GMT). We will explore what tax evasion is, discuss India’s efforts to curb it, and delve into international reforms aimed at combatting this global issue.
Understanding Tax Evasion
Tax evasion is a criminal act in which individuals or businesses use fraudulent methods to avoid paying their due taxes. These methods can include underreporting income, hiding money in offshore accounts, or inflating deductions, all with the aim of reducing their tax liability.
Indian Measures to Curb Tax Evasion
India, like many other countries, has taken steps to combat tax evasion. Here are some of the key measures employed:
- E-Invoicing: Implementing electronic invoicing systems to track transactions and reduce opportunities for evasion.
- Fugitive Economic Offenders Act, 2018: Enabling authorities to confiscate and recover assets from economic offenders who flee the country.
- The Black Money (Undisclosed Foreign Income and Assets) Imposition of Income Tax Act, 2015: Targeting individuals who have undisclosed foreign income or assets.
- Prevention of Money Laundering Act, 2002: Combating money laundering, which often goes hand in hand with tax evasion.
- Treaties such as Double Tax Avoidance Agreement (DTAA) and Tax Information Exchange Agreement (TIEA): Collaborating with other countries to share tax-related information.
- The Benami Transactions Informants Reward Scheme: Encouraging individuals to report benami transactions, where property is held by one person on behalf of another.
- Reduced Corporate Tax Rates: Lowering the corporate tax rate to 22% for existing companies and 15% for new manufacturing firms to encourage compliance.
International Reforms to Combat Tax Evasion
Recognizing that tax evasion is a global issue, international efforts have been made to combat it. Some significant reforms include:
- Global Minimum Tax (GMT): This initiative sets a standard minimum tax rate globally, discouraging tax competition among countries. The OECD proposed a 15% corporate minimum tax on foreign profits of large multinationals.
- Multilateral Agreement: In October 2021, 136 countries, including India, agreed to a 15% minimum global tax rate to prevent tax avoidance on a large scale.
- Automatic Exchange of Information (2017): This measure was introduced to combat offshore tax evasion by enabling the automatic sharing of financial information about foreign account holders, making it harder for individuals to hide assets in other countries.
Important Points:
- Tax Evasion:
- Involves illegal methods to avoid paying owed taxes to the government.
- Methods include underreporting income, offshore accounts, and inflated deductions.
- Indian Measures to Curb Tax Evasion:
- E-Invoicing: Implementing electronic invoicing systems for transaction tracking.
- Fugitive Economic Offenders Act, 2018: Allows confiscation of assets from economic offenders who flee.
- Black Money Act, 2015: Targets individuals with undisclosed foreign income/assets.
- Prevention of Money Laundering Act, 2002: Fights money laundering often linked with tax evasion.
- DTAA and TIEA Treaties: Collaborative efforts with other nations for tax-related information sharing.
- The Benami Transactions Informants Reward Scheme: Encourages reporting of benami transactions.
- Reduced Corporate Tax Rates: Lowered rates for companies (22% for existing, 15% for new manufacturing) to promote compliance.
- International Reforms to Combat Tax Evasion:
- Global Minimum Tax (GMT):
- Sets a standard minimum tax rate globally, discouraging tax competition.
- OECD proposed a 15% corporate minimum tax on foreign profits of large multinationals.
- Multilateral Agreements:
- 136 countries, including India, agreed to a 15% minimum global tax rate in 2021 to prevent large-scale tax avoidance.
- Automatic Exchange of Information (2017):
- Combats offshore tax evasion by automatically sharing financial information about foreign account holders.
- Global Minimum Tax (GMT):
Why In News
The European Union Tax Observatory’s ‘Global Tax Evasion Report 2024’ comprehensively examines the intricate dynamics of tax evasion, delves into the implications of the Global Minimum Tax (GMT), and explores effective measures to combat tax evasion, providing invaluable insights for policymakers and researchers alike.
MCQs about Global Initiatives Against Tax Evasion
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What is the purpose of the Global Minimum Tax (GMT) ?
A) To increase tax rates globally
B) To encourage tax competition among countries
C) To discourage tax evasion by setting a standard minimum tax rate
D) To eliminate corporate taxes for multinational companies
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Which Indian act enables authorities to confiscate assets from economic offenders who flee the country?
A) Prevention of Money Laundering Act, 2002
B) The Black Money (Undisclosed Foreign Income and Assets) Imposition of Income Tax Act, 2015
C) Fugitive Economic Offenders Act, 2018
D) Benami Transactions Informants Reward Scheme
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What does the Automatic Exchange of Information, introduced in 2017, aim to combat?
A) Tax competition among countries
B) Offshore tax evasion by wealthy individuals
C) Benami transactions
D) Corporate tax fraud
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What is the primary goal of India’s reduced corporate tax rates for existing and new companies?
A) To increase tax burden on businesses
B) To promote tax evasion
C) To encourage compliance and reduce tax evasion
D) To eliminate corporate taxes entirely
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