TITLE: EFFECT OF TAXATION AMENDMENT IN CORPORATE ARENA

ABSTRACT

Tax amendment 2019 in India has brought major changes in the taxation revenue as well as
provisions. The success rate of this planned move is still unknown. This could be interlinked with
privatization and thereby tax evasion. There is a generalized misconception with privatization
that it leads to heavy loss in the earning. In fact, privatization helps to expand the earnings of the
government by opening the wide taxation structure and slab. However, this side of privatization
hasn’t been discussed much in less developed countries due to the difficulties in tax collection
and the wide loopholes that help in tax evasion for the corporations. As per the report of Tax
Justice Network 2020, Indian tax evasion amounts to around $10.3 billion per annum of which a
major chunk is by the International corporate abuse. It is high time to have a strong statute. An
analysis of all these aspects along with the traditional difficulties to incorporate privatization to
the mainstream of tax collation hence breaking the stereotype and showing how privatized tax
collection will help as an efficient alternative to state tax collection is done in this paper. We can
see incidences of developed countries like the US and Europe cutting their tax rate below their
average. There are no cited precedents where a developing country has cut down the slab unlike
India through the aforementioned amendment.
This paper also compares the major reduction of tax rate by developed countries with the Indian
amendment along with the suggestions to strengthen the Indian Tax Statute. The research takes
into account the various changes before and after the amendment and its effects in the corporate
sector.

Keywords: Planned amendment, privatization, tax evasion, loopholes, corporate taxation

FINDINGS

In this paper the main focus is on the international corporate arena with respect to the effects of
planned amendment. To analyze the same it is important to address three major questions
namely: i) Why is investments not made in developing countries with respect to planned
amendment? ii) What is the effect of increasing privatization? iii) What could be the suggestions
to improve the income tax statute of India.
First of all the findings of the first aspect is being given below with reference to an aerlier similar
amendment made in a developed country like the US
US SLASH OF TAX SLAB
On December 22, 2017 , Donald Trump signed the Tax Cuts and Job Act (TCJA). This Act
proposed a deduction of corporate tax from 35% to 21% which is less than the average tax rate of
the US.This reduction proved to be fruitful decisions for corporations whereas individual income
tax payers of high-income cities were affected badly.
1. The elasticity of taxable income was high when TCJA was introduced. Loopholes were
found by various individuals owning non-corporate entities as they try to evade tax by
converting their income from individual status to a corporate status.
 This degree of elasticity was not seen when the Taxation amendment Act 2019 was
established. The overall effective tax rate proved a decrease from 25.17% to 22% that is
merely 3%. Corporates didn’t find it that beneficial as deductions are also included in the
new tax plan.
2. GDP is a good indicator of growth. US deduction of tax slab to half of its then present
rate is sure to gain more investment as well as new corporations coming up in the
country.
According to world bank data, The GDP growth of the US in 2018 was 2.996%
compared to 2017 percentage of 2.336% and 2019 percentage of 2.161%. There has been
a steady increase each year.
India has a smooth and steady increase in GDP which is 4.042% in 2019 that is before the
introduction of amendment. But in 2020 this rate fell down terribly to -7.965%
The US also faced a fall to -3.486%.
This can be due to the influence of Covid-19 and its destruction of the economies of
almost all countries in the world. Along this destruction , India had passed the Tax
amendment Act hoping for higher investment. So investment was not received as
expected by the government as other countries and foreign individuals were busy
reviving their economy and caring for their people.
3. The US not only slashed the tax rate but also gave various other offers along with the
reduction. The US wanted its already existing corporate form to take a firmer grip. So
they also announced various other factors that attract the business more that aimed for
long term benefits.

Secondly, the burden of taxation concept in India and other developing countries is the problem
of tax evasion even after having stringent tax law and various amendment to overcome this
problem but still the issue is prevalent. So one option her is to look into the concepts of modern
taxation structure were income and taxation from private firms and corporates is an important
part in overcoming this problem and one such solution is to introduced the concept of
privatization which in turn will help in reducing the burden on the government
 It is a matter of fact that in lower developed countries there is misconnection with aspect
to privatization, as result of which most of industries are either owned by the government
or under a state owned enterprise. This action results in huge hidden loss to government
earnings because they fails to tax these government owned industries and on the other
hand if these industries were privatized this would have helped in generating huge
revenue to the government
For eg;- when a company is a state owned enterprise large amount of tax exemption is given to
that company like they don’t have to pay capital tax or property tax but on the other hand if the
same company is privatized that company has to pay all these taxes to the government

 There is little or zero experiment with privatized tax system in these countries they are
still depended on the age old traditional methods of taxation. These countries are still
 exploring and understanding the concept of privatization and how to explore its
opportunities
 The government structure itself was to large and decisions were made keeping in mind of
the individual benefits(agenda of government or individuals) which often lead to conflicts
resulting in functioning of free market structure
 A minimal involvement of government means the market tend to act on its own, this will
further increase the competitive structure and thus regenerating the market
 Most often these SOE cannot cater to the expectation of public which results in
depreciation of the company’s credibility, privatization results in competition which leads
to increase in its quality and quantity of the service provided
 As a free economy the citizens of the country will be able to get a direct ownership in
companies and the interaction between citizen and government become more vibrant
 The basic system of taxation will change how the tax are lived will be drastically change
as a result of change in ownership in SOE

Also, it is significant to check upon the tax evasion done by international corporations before and
after the amendment. As per the parliamentary papers, during 2017 July to 2020 August there
were 906 cases booked against exporters for fraudulent claims of GST refund. In these cases, the
quantum of tax evasion was Rs 2551.15 cr; out of which only Rs 293 cr could be recovered. The
pandemic has exposed the grave cost of turning tax policy into a tool for indulging tax abusers
instead of for protecting people’s wellbeing. As per the reports of Tax Justice Network 2020,
G20 member countries are responsible for 26.7% global tax loss. Here, the major question would
be how can we curb tax evasion and whether this planned amendment has brought any
significant change in this aspect. A few solutions are being formulated to resolve this issue.

REFERENCE

 Taxing Issues with Privatization by Jack M. Mintz,Duanjie Chen, Evangelia Zorotheos.

The World Bank ,World Bank Institute Governance, Regulation, and Finance Division
May 2000
 Could privatization increase the efficiency of tax administration in less-developed
countries? by Edgar Kiser and Kathryn Baker : Policy Studies Journal(Vol. 22, Issue 3)
 The tax ratchet Ari glower and David kamin Annual conference on taxation and minutes
of the annual meeting of National Tax Association, 2018, vol. 111(2018) ,pp 1-5
 Effects of the tax cuts and jobs act : a preliminary analysis William G Gale , Hilary ford ,
Aaron krupkin, mark j Mazur and Eric toder June 13 2018
 The state of Tax Justice 2020: Tax Justice in time of covid 2020; Report by Tax Justice
Network, Nov 2020
INDIVIDUAL WORK:
Isabell Manoj – Findings on 1st aspect
Sidharth AJ – Findings on 2nd aspect
Meera R Menon – Findings on 3rd aspect