SOVEREIGN RIGHT TO TAX

Introduction

                              “A tax is a mandatory fee/ financial charge levied by any government on an individual or an organization to collect revenue for public works providing the best facilities and infrastructure”. If one fails to pay the taxes or refuse to contribute towards it, will invite serious implications under law. It is very much evident that “taxation is a sovereign right”. But the problem is with the big difference that can be seen in the national tax systems of various countries. So, there exists a need for the countries to reconcile the differences which existing and to convert to a fully international tax system. Hence, here we will analyze in detail about the taxes, types of taxes and sovereign right to tax in detail manner.        

Tax and types of taxes

                               Tax is a compulsory payment and is not payment as per the wish or desire of the individual. Tax is one of the main ways for increasing the revenue of the government. The taxes are mainly of two types. They are “direct and indirect taxes”.  The government uses the amount that they receive through these taxes for implementing various programs for the people. It includes, ‘Welfare measures for establishing schools, colleges, Primary health centers, hospitals’ etc, to increase the infrastructural facilities such as constructing bridges, modifying railways, introducing the pension schemes for old age and vulnerable groups etc…

                              We know that in India we have two types of taxes, i.e. “Direct taxes” and “indirect taxes”. One of the most important reforms of tax here in our country is the “goods and service taxes” i.e. ‘GST’. “Direct tax” is a ‘tax which is imposed upon the people and corporate companies’. E.g. ‘Income tax’, ‘wealth tax’ etc… “Indirect taxes” are those, ‘which are imposed upon the public through goods and services’. “Customs duty” is imposed or is ‘obtained on all the goods which enter the country to check whether they are taxed and paid for’. “Excise duty” is really ‘a commodity tax which is levied on the production of the goods but not in the sales’. In case of “service tax” the taxed goods is a ‘service’. “Value added tax” is, ‘a tax which is brought to as a result of the indirect structure of taxes exciting in India which is quite a weak one’. The indirect taxes introduced by the central as well as state government are now incorporated by “goods and service tax”. 

Taxation- a sovereign right

                             “OECD a club in which rich countries are part, wants an overhaul of international tax rules to stop the multinational companies from shifting their profits to tax havens and to stop the  paying the taxes in their homeland. The recommendation which was put in front of the finance ministers of G20 is really an acceptable one. Governments should combat aggressive tax avoidance to boost revenues, even if companies use legal loopholes”[1]. It is a fact that, a large number of multinational companies are using a variety of rules among various nations to lower their taxes outgo. But as per “OECD”, such rules which are followed will not result in “integration of the economy over the borders”. We all know that the business grows day by day and it is now a global one. The fact is that the multinational companies receive or make a huge profit in the country in which their revenues are made out, because it helps to avoid taxes.

                   We all know that “taxation is a sovereign right” and it is a true fact that there exist many changes among the taxation systems that is prevailing in various nations. So, there exists a need for the countries to stand together to bring in a uniform tax system which will be an international approach and will fulfill the dream of a truly and completely international tax system. An overtake of the global  rules regarding tax  can also help the multinational companies to get out from the restrictions or limitations faced by them due to bilateral treaties of tax that affects multinational companies now a days. The European Union’s proposal is an acceptable one in which it proposes to have a common and combined “corporate tax base”. In which the “tax base” will be shared among the members to be taxed at rates determined according to the needs of these countries is very much acceptable. The revenue got through taxes has been lowered in “OECD” countries due to the reduction in “statutory corporate tax rates”. That means, a clear decline can be found from 32.6% to 25.4 during the period from 2000 to 2011. It is a fact that in India we have a tax rate which is also lower than the “statutory corporate tax rate”. A decline in the economic activity has also affected the collection of taxes.

Significance of Vodafone case

                          “Vodafone” has successfully won in the arbitration which was against the government of India regarding the “retrospective taxation”. It helps other such companies to approach for such reliefs provided by arbitration. Our country is involved in lots of such cases regarding “the retrospective taxation and contact cancelling”. If each of such cases has failed a huge amount of compensation has to be given. In order to reduce such arbitrations our country has also “stopped bilateral investment agreements for about fifty countries and is also searching for an advanced law which will provide protection to the investors of foreign countries by giving them the relief through desirable changes in policy because it also raises a right to tax”[2].

Conclusion

                    So, here we have clearly analyzed about taxes, types of taxes, India’s tax system and important constitutional provisions the concept of taxation which is a sovereign right and also the “vodafone tax case” in detail. So it is clear that, “taxation is a sovereign right” and it is a true fact that there exist many changes among the taxation systems that is prevailing in various nations.


[1] “Taxation Is a Sovereign Right” (The Economic Times) <https://economictimes.indiatimes.com/opinion/et-editorial/taxation-is-a-sovereign-right/articleshow/18507174.cms?from=mdr&gt; accessed May 12, 2022

[2] TNN / Updated: Oct 14 2020, “Vodafone Arbitration Case: ‘Sovereign Right to Tax’: Govt May Not Implement International Tribunal’s Order on Vodafone: India Business News – Times of India” (The Times of IndiaOctober 14, 2020) <https://timesofindia.indiatimes.com/business/india-business/sovereign-right-to-tax-govt-may-not-implement-international-tribunals-order-on-vodafone/articleshow/78651557.cms&gt; accessed May 12, 2022

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