Page 71 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes

Did u know? Any price control without any adequate machinery of distribution and speedy
arrangement for increasing supplies is potentially a source of black money generation.
(ii) Tax Structure: High tax rates and defective tax structure is a major cause of tax evasion. An
individual has to pay a substantial amount of taxes on his salary and when he invests the
remaining salary, the profit earned is also taxable. This is not the least, on every purchase of

any product and commodities he pays the various taxes attached with it. This is annoying
to an individual which encourages him to default taxes. Honest assesses are not aware how
to file tax returns. This may lead to tax evasion.

(iii) Donation to Political Parties: Ever since the Government decided to ban donations to
political parties in 1968, it prompted businessmen to fund political parties, especially the
ruling party, with the help of black money. Ostensibly, this decision was taken to reduce

the influence of big business on the electoral process, but in practice what happened was
precisely the opposite. Businessmen everywhere have by now learnt that they should pay
a certain charge out of the black money to the coffers of political parties and then be sure
that the political leaders will only bark but not bite.

Did u know? The political instability witnessed in the country in -various states has resulted
in widespread horse-trading of the MLAs at the state levels and MPs at the Central level.
In this process of buying political support, black money plays a crucial role. Consequently
the determination of the ruling political party to curb black money has become very weak.
As a consequence, businessmen feel they have an unfettered license to spin black money,
pay a small part to the political parties as donations and then enjoy the rest the way they
like. Unless the link between black money and political power is broken, there is no hope
of controlling the generation of black money or its link with crime.
(iv) Ineffective Enforcement of Tax Laws: Whereas the Government has an armoury of tax
laws pertaining to income tax, sales tax, stamp duties, excise duty etc., their enforcement
is very weak due to widespread corruption in these departments. . The high rates of these
taxes induce businessmen to avoid recording of these transactions. This evasion largely
goes unchecked and thus sets in a chain reaction for the generation of black money at the
wholesale, retail as well as production levels.

(v) Generation of Black Money in the Public Sector: Every successive five-year plan is planned
for a larger size of investment in the public sector. The projects undertaken by the public
sector have to be monitored by the bureaucrats in Government departments and public
sector undertakings. Tenders are invited for the various works and these tenders are
awarded by the bureaucracy in consultation with the political bosses. Thus, a symbiotic
relationship develops between the contractors, bureaucracy and the politicians and by a
large number of devices costs ‘are artificially escalated and black money is generated by

underhand deals. Instability of the political system has given a further momentum to this
process. Since the ministers are not sure of their tenure and in a majority of cases, the
tenure is very short, the principle ‘Make hey while the sun shines’ is adopted by most of
them. The larger numbers of scandals that are unearthed by the Opposition only support
the contention that huge investment in the public sector is a big potential source for black
money generation. In this process, bureaucrats act as brokers for political leaders and thus
the nexus between business, bureaucracy and politicians promotes the generation of black
money.
(vi) Ceiling on Depreciation and Other Business Expenses: Government has imposed
restriction. It has also circumscribed expenses on advertisement, entertainment, guest
houses, and payment of perquisites to directors. The purpose of these restrictions is to
protect the shareholders and consumers from the unscrupulous action of businessmen.

66 LOVELY PROFESSIONAL UNIVERSITY