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Budgets Are Go...

Kitty Miv, Editor
15 February, 2021

In the last column, we looked at various of the COVID-19 tax measures in place around the world. This week, we will be examining reform plans for the year ahead, starting with India's recently unveiled Budget, which included a reduction in tax on imported gold and silver and tax cuts for certain imported inputs.

In the area of direct taxes, the Indian Government announced its intention to reduce the time-period during which the tax authority can probe an individual's tax affairs. Under the change, the authority will be able to investigate a taxpayer only within three years of the relevant year, rather than the current six years. However, investigations may occur up to ten years after the year in question in the case of serious tax evasion involving income of INR5m or more in a year.

Further, the Budget unveiled plans for a new dispute resolution committee. Taxpayers with taxable income up to INR5m (USD68,000) and with disputed liability of up to INR1m will be able to approach the committee.

With regard to indirect taxes, the Budget announced that India will phase out hundreds of customs duty exemptions, in a new duty structure to be introduced in October.

The Budget also announces a tax on exports of electronic and mobile devices of 2.5 percent, up from zero percent, and the aforementioned cut to the import tax rate on gold and silver to 7.5 percent from 12.5 percent.

In Botswana, meanwhile, the Budget was bolder, containing plans to hike the headline value-added tax rate to 14 percent from 12 percent from April 2021.

The Budget additionally contained an increase in the fuel levy to compensate for the introduction of a VAT zero rate for fuel, an increase in the withholding tax rate on dividends from 7.5 percent to 10 percent, and an increase to the personal income tax exempt threshold to BWP48,000, from BWP36,000 (USD3,280).

Indirect tax matters were on the menu in Germany, where it was announced that the seven percent reduced rate of VAT for food served by the hospitality industry will be retained until the end of 2022.

The reduced rate, which was introduced from July 1, 2020, was due to return to the headline rate (currently 19 percent) from June 30, 2021.

In Costa Rica, however, more wholesale reforms are potentially on the horizon, to which end, the Ministry of Finance issued three statements in response to concerns from taxpayers and businesses with regard to the recently announced tax reform plans, for a new tax on expensive real estate and a global income tax regime.

Under the proposals to introduce a worldwide tax system in Costa Rica, potentially from 2023, the top rate of individual income tax and the headline corporate tax rate would be 27.5 percent. Presently, the corporate tax rate is 30 percent and the top individual tax rate is 25 percent. A progressive individual income tax scale is proposed for lower-paid taxpayers, with the tax-exempt allowance proposed to be set at CRC8.2m (USD13,400), exempting some 70 percent of income earners from tax.

The Government explained that establishing a single rate of tax for all categories of earned income would prevent persons from trying to recharacterize their income to reduce their tax bills, but clarified that the tax rules for pensions income will remain unchanged, and further confirmed that companies in free trade zones would continue to be covered by the exemptions provided under that regime.

Commenting on the new tax on high-value properties, which would be introduced in place of the current solidarity tax regime, and levied at a 0.5 percent rate annually on properties valued at about CRC150m (USD244,000), the Ministry said the tax would apply only to property for residential, occasional, or recreational use, flagging up a significant number of exclusions from the planned new tax, and pointing out that just two percent of real property in the country currently has a registry value of more than CRC150m.

Until next week!


About the Author

Kitty Miv, Editor

Kitty was born in Argentina in 1960 to a Scottish cattle rancher and his Argentine wife. Educated in Edinburgh and at Princeton, Kitty worked for the World Bank as an economist, where she met and married an emigre Iranian banker. During her time with the Bank, Kitty worked in a number of emerging markets, including a spell in the ex-USSR as a Transition Economies Team Leader. Kitty is now a consultant in Brussels and has free-lance writing relationships with a number of prominent economic publications. kitty@lowtax.net


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