Financial Daily from THE HINDU group of publications
Saturday, Jun 08, 2002
Columns - Detaxfication
Rocking the boat
THE Illinois General Assembly's move to raise taxes on riverboat casinos from the present 35 per cent to 50 has caused waves. Though gambling dens are usually put on the same rung as tobacco or liquor as ideal prospects to tax the `sinners' the hike was worse than expected, and it is feared that casinos would not be able to offset the rise in taxes by increasing the number of slot machines allowed.
While casino owners are concerned how they are going to keep their boats afloat, the authorities are more worried about keeping the finances afloat.
TYCO, based in Bermuda, is a big name in electronic connectors, undersea fibre-optic cable, security systems valves and disposable medical products. The company ousted its Chairman and CEO, Dennis Kozlowski, after he told the board he was under criminal investigation in New York state for personal tax evasion.
Kozlowski joined Tyco in 1975 and became CEO in 1992 and his employment contract had earlier been extended through 2008.
The allegation is that Kozlowski used family trusts to make purchases without paying sales taxes; that he failed to pay taxes on expensive artwork, including paintings by old masters. Kozlowski also resigned from the board of Raytheon Co., the third-largest defence contractor. "Ten years ago a CEO in trouble could manage to keep his job," says Mr Charles Elson, director of the University of Delaware Corporate Governance Centre. "The level of accountability is much greater now." According to another analyst, "Boards and stockholders have a low tolerance these days. They are particularly hard on CEOs seen as using questionable accounting."
Would such things happen here? Doubtful, because we are more tolerant.
PERU'S Economy Minister, Mr Pedro Pablo Kuczynski, is contemplating a new package of tax measures, including a crackdown on tax evasion on some agriculture products and alcohol. "On the expenditure side things are firmly under control," he has said. "The real challenge is on the revenue side."
The Minister wants to crackdown on evasion of sales and food taxes particularly on sugar, alcohol, cotton and rice and prohibit companies owing back taxes from paying dividends.
As part of the move, some 13,000 companies are also slated for tax audits this year.
While this shows how there is still faith in audits to get more tax, could lawmakers think of reciprocating by keeping tax out of audit?
IN INDIA, we have been worried about the yawning deficit and revenue fall. Ditto in Indiana (US) that, like most other states, has seen its revenues fall due to the national economic recession and the September 11 attacks.
Its tax revenues in May plummeted $110 million below forecast, adding to the state's already severe budget problems.
The State Governor, Mr Frank O'Bannon, called on state lawmakers for help: "I have in my hand the revenue report for May. Let me tell you folks, if this isn't the kick in the head that causes lawmakers to act now, I don't know what is." He wants to patch-up the deficit even as the State is `on track toward a historic second straight year of negative revenue growth'.
It would be far-fetched to imagine our lawmakers getting a `kick in the head' from dismal numbers.
LEADERS of rich industrialised nations, G8, are to meet later this month in Canada.
Japan is afraid it may be grilled on its recovery prospects in the Canadian Rocky Mountain resort of Kananaskis. Last week, Moody's cut Japan's rating by two notches, putting it three notches below Italy, which has the next-lowest ratings among the Group of Seven industrial countries.
The textbook solution of wasteful public works spending, as an antidote to economic slowdown, has led to a ballooning of Japan's public debt to 140 per cent of GDP, the worst among industrial nations.
Policymakers are looking at changing the tax regime as a key step to spur activity among ailing businesses, balancing out tax cuts with tax hikes elsewhere.
Tax becomes the ultimate jigsaw for both the rich and the poor countries.
WHILE every country is worried about China as a threat, China too has its own worries. After its entry into the WTO, it has agreed to end preferential treatment of companies, abolishing the special tax status accorded to foreign enterprises in the five special economic zones Shenzhen, Zhuhai, Xiamen, Shantou and Hainan that were set up to lure foreign manufacturers to invest in production facilities.
An imminent end to a two-decades old policy that is sure to face opposition from local officials keen on attracting foreign investment. Typically, foreign-funded firms enjoy preferential income-tax rates at 15 per cent while domestic firms get taxed at 33 per cent.
China is anxious to have a smooth tax reform to protect billions of dollars in foreign direct investment (FDI) needed to spur its economic upswing.
A cake to eat and to have too.
"Reduced them to paupers."
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