Taxation Current Affairs - 2019
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Saudi Arabia and United Arab Emirates (UAE) became first countries of Gulf Cooperation Council (GCC) to introduce Value Added Tax (VAT) for the first time to increase their revenue away from oil reserves. The other members of 6 member GCC– Bahrain, Kuwait, Oman and Qatar — have also committed to introduce VAT, though some have delayed plans until at least 2019.
The rate for VAT is set at 5% on the majority of goods and services including petrol and diesel, food, clothes, utility bills and hotel rooms. Number of goods and services including medical treatment, financial services and public transport have been placed in either zero rated or in exempt category.
In Saudi Arabia, more than 90% of budget revenues come from oil industry while in UAE it is roughly 80%. Organisations such as the International Monetary Fund (IMF) had long called for Gulf countries to diversify their sources of income away from oil reserves. Both countries have already taken steps to boost government coffers.
Value Added Tax (VAT)
A VAT is type of consumption tax that is placed on product whenever value is added at stage of production and at point of retail sale. It is one of the most common types of consumption tax implemented in more than 150 countries around the world. It is charged at each step of the ‘supply chain’. Final consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
India has signed agreement with Switzerland for automatic sharing of tax-related information from January 1, 2018 with an aim to combat black money.
Prior to it, India had to ask Switzerland for specific bits of information against the Indian account holder in Swiss banks. But due to its earlier secretive laws it could delay or deny information altogether.
Switzerland always has been at centre of debate on black money allegedly stashed by Indians abroad. It is infamously known for very strong secrecy walls around its banking practices till few years ago. In recent past, huge global pressure has resulted in Switzerland relenting on tough secrecy clauses its local laws gave to banks.
The signing of agreement comes after completion of parliamentary procedure in Switzerland for changing domestic secretive banking laws and signing of mutual agreement between India and Switzerland. Both countries in November 2017 had signed a joint declaration for the implementation of Automatic Exchange of Information (AEOI). It provided that both countries will start collecting data in accordance with global standards in 2018 and exchange it from 2019 onwards. The AEOI conforms to norm set by Organisation for Economic Co-operation and Development (OECD) for tax transparency.
Under the automatic information exchange framework, confidentiality and data protection requirements is to be strictly followed. This process will ensure that signatory always maintains control over its exchange partners and treatment of data exchanged as per OECD norms. The automatic exchange of information will discourage Indians from stashing black money in Swiss banks.