Page 73 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes (iii) Difficulty in the Formation of Monetary and Fiscal Policy: Since the government cannot
take into account the black money in circulation in the economy while forming its monetary
and fiscal policies, the policies so formed by the government cannot be realistic. It is diffi cult

to form these policies in the absence of the exact calculation of the black money and without
bringing it in the accounting procedures of the government.
(iv) Decreasing Rate of Investment in India: Since the black money of Indian is mostly deposited
outside India, resulting decreasing rate of investment in India. The expected amount of
black money is supposed to end the unemployment problem of India in a few years if it is
bring back to India.
(v) Tax Evasion Causes Decrease in Quality of Public Goods and Services: When bribes which
are to paid as black money to the producers of goods and provider of services, it is but
natural that they will provide the quality of goods and services only to the people who
pay bribes whereas the general public has to suffer as the same quality and service is not
provided to everyone.

Example: If you have to get a job done in office, your work will be done without any delay

if you pay bribes to the officials who have to do your job. But for the same kind of job, another

person who does not bribe the officials has to wait for several days, weeks or even months.

(vi) Rupee Depreciation: Tax evasion leads to flow of money out of country in terms of dollars
by selling rupee, which leads to its depreciation. If tax is paid to the government it leads
to the development of country which boosts overall growth of economy which in terms
increases the rupee value.
(vii) Formation of Parallel Economy: The money generated through ill legal activities that are
kept hidden from the concern government authorities. Taxes are not paid on that money. In
opposite to this white money shown in accounts and tax paid on it. There is not transaction
record of tax evaded money in the market. This is two different economy one is accountable
and other is not accountable. Now a day’s plenty of case of black money rises. The black
money involved in illegal transaction accounts that it’s between the ranges of 20% to 50%
of country’s growth. The effect of parallel economy is too much on Indian economy.
(viii) Impact on India’s Reputation: This tax evasion and corruptions put a very bad impression
of India’s reputation. Many big businessmen in world are pulling their hand back from
India. They are not interested in to do business with India due to this corruption. In
Corruption Perceptions Index (CPI) India is ranked 87 numbers out of 178 countries. Due
to big scams like 2G scam, common wealth game scam.
3.3.4 Remedies to Overcome (Reduce) Tax Evasion

The remedies to overcome (reduce) tax evasion are as follows:
(i) Reducing Tax Rate: Government by reducing the tax rate on an individual income and
income earned after investment will encourage them to avoid tax evasion and invest in
various investment instruments available in India itself, like DTC, tax deduction available
in Provident fund, Post office schemes, etc.

(ii) Strong Surveillance System: Government should bring strong surveillance system in place
which will check suspicious trade and transaction taking place and will have also have the
complete authority to check tax defaulter, etc.

(iii) Simplifi ed Tax Laws and Filling Mechanism: Present tax laws and tax fi lling mechanism

is very complex and very difficult for a layman to understand it and claim for various
deductions available in various sections. Simplified tax law will make things easy for

everyone to pay taxes.

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