Terms Related to Taxation
- Cascading Effect – It is a tax on tax. It makes the tax rate much higher than the original rate.
- Tax Buoyancy – It measures the responsiveness of tax mobilisation to economic growth/GDP.
- Tax Elasticity – Percentage change in tax revenue with respect to change in tax rate and extension of coverage.
- Tax Expenditure/Revenue Forgone – It is the opportunity cost of taxing at concessional rates like giving exemptions, deductions, rebates, etc. to the taxpayers.
- Pigouvian Tax – It is the tax on companies that create negative externalities and adverse effects on the society.
- Tax Mitigation/ Tax Planning – It refers to financial planning for tax efficiency. It is not illegal or unethical. It is representative of Financial Prudence.
- Tax Avoidance – It is the use of legal methods to minimize the amount of income tax owed by an individual or a business by claiming as many deductions and credits as are allowable.
- Tax Evasion – It is an illegal activity in which a person/entity deliberately avoids paying a true tax liability.
- Tax Inversion – Form of tax avoidance where a firm bases its headquarters in a low tax country while keeping its material operations in the high tax countries.
- Black Money – Funds earned through illegal activity or the income concealed from the tax authorities.
- Money Laundering – It is an illegal process of making large amounts of money generated by a criminal activity, such as drug trafficking or terrorist funding, appear to have come from a legitimate source.
- Tax Haven – It is an offshore country that offers little or no tax liability. Eg- Cayman-islands, Panama, islands, Singapore etc.
- Tax Terrorism – Undue exercise of power by tax authorities to levy taxes using legal or extra-legal means.
- Transfer Pricing – It Is the setting of the price for goods and services sold between controlled/ related legal entities to be situated in different countries within an enterprise.
- Round Tripping – Money that leaves the country through various channels and makes its way back into the country often as foreign investment. This mostly involves black money and is allegedly often used for stock price manipulation.
- Shell Companies – These are corporate entities which do not have any active business operations or significant assets in their possession. They used for money laundering, tax evasion and other illegal activities.
- Tax Compliance – Tax Compliance is the degree to which a taxpayer complies (or fails to comply) with the tax rules of his or her country, for example by declaring income, filing a return, and paying tax due in a timely manner.
- Grandfather Clause – A grandfather clause is a provision in which an old rule continues to apply to some existing situations while a new rule will apply to all future cases.
- Fiscal Drag – Fiscal drag is a concept where inflation and earnings growth may push more tax payers into higher tax brackets.
- Fiscal Cliff – The point at which tax cuts would expire, and spending cuts would be triggered.