Tax Terrorism’ essentially means the undue exercise of power by tax authorities to levy taxes using legal or extra-legal means. The Vodafone case is a classic example, when despite the Supreme Court order ruling in favour of the company, tax laws were amended, retrospectively.
Essentially, tax terrorism is an outcome of the existing tax framework.
- Complex tax structure — Numerous taxes apply even on seemingly simple transactions. Such a web of taxes acts adversely to smooth flow of business.
- Ambiguity in laws — This bends the law in favour of those who implement it. Vague definitions have led to disputes over the applicability of Minimum Alternate Tax, Capital gains tax, etc. in cases like the Vodafone and Cairn Energy Plc.
- High imbalance — The IT Act allows CBDT to send notices just based on suspicion that one has under-reported his income or miscalculated taxes. Such discretion on the authorities, at times, is misused.
Impact of Tax Terrorism:
- Tax terrorism has resulted in non-compliance even by the entrepreneurs who are willing to comply since either way they are prone to litigation.
- Such opaqueness in tax obligations results in a lack of predictability in incomes and hence, difficulty in charting out future plans of the investors.
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