English Test-6...

The problem with backdating taxes is that the taxpayer will have to continuously guess how much of his current income will be taken away at a later date. This is the crux of the Parthasarathi Shome committee report on retrospective taxation of cross-border acquisition of Indian assets, like Vodafone ’s $11.2 billion purchase of Hutchison ’s stake in the country ’s third largest telecom service provider in 2007.
The Supreme Court in January ruled against the taxman, who was claiming Rs. 11,200 crore in tax, penalty and interest. The court conceded that Indian law was incapable of plugging a widely used tax dodge by inbound foreign investment. The message for the government in the verdict was that the law needed to be changed to curb treaty shopping, the practice of routing investments through letter-box companies in havens like Mauritius to avoid paying taxes in India.
Presenting his last budget in March, the then finance minister Pranab Mukherjee, altered the Income Tax Act to tax such deals with retrospective effect. His argument was since the court felt the intent of the law was not clear, it had to be explicitly clarified for the entire past life of the Income Tax Act, which was enacted in 1962. This last bit - that deals done earlier could be taxed - raised a chorus of protest from the investing community, and the finance ministry under P Chidambaram sought an independent review of its stand. Mr Shome, a tax expert of international standing, has now told the government what it knew all this while: taxes in retrospect are best avoided.
Specifically, they must never be used to merely raise tax revenue. In the Vodafone case, the Shome committee is unequivocal: the company to claim tax from is Hutchison, which made the profit from the sale of its stake in the telecom company. Vodafone was not required by the extant law to withhold capital gains tax. Since Vodafone made no profit in the deal, the question of interest and penalties on back taxes does not arise.
Mr Chidambaram has indicated his desire to reverse the decision as soon as possible, even before the next budget when, normally, amendments to the Income Tax Act are undertaken. He reckons investors will return to the table once the fog over retrospective taxes is lifted.

Which one of these options best explains the reference the author makes to the practice of treaty shopping?

The problem with backdating taxes is that the taxpayer will have to continuously guess how much of his current income will be taken away at a later date. This is the crux of the Parthasarathi Shome committee report on retrospective taxation of cross-border acquisition of Indian assets, like Vodafone ’s $11.2 billion purchase of Hutchison ’s stake in the country ’s third largest telecom service provider in 2007.
The Supreme Court in January ruled against the taxman, who was claiming Rs. 11,200 crore in tax, penalty and interest. The court conceded that Indian law was incapable of plugging a widely used tax dodge by inbound foreign investment. The message for the government in the verdict was that the law needed to be changed to curb treaty shopping, the practice of routing investments through letter-box companies in havens like Mauritius to avoid paying taxes in India.
Presenting his last budget in March, the then finance minister Pranab Mukherjee, altered the Income Tax Act to tax such deals with retrospective effect. His argument was since the court felt the intent of the law was not clear, it had to be explicitly clarified for the entire past life of the Income Tax Act, which was enacted in 1962. This last bit - that deals done earlier could be taxed - raised a chorus of protest from the investing community, and the finance ministry under P Chidambaram sought an independent review of its stand. Mr Shome, a tax expert of international standing, has now told the government what it knew all this while: taxes in retrospect are best avoided.
Specifically, they must never be used to merely raise tax revenue. In the Vodafone case, the Shome committee is unequivocal: the company to claim tax from is Hutchison, which made the profit from the sale of its stake in the telecom company. Vodafone was not required by the extant law to withhold capital gains tax. Since Vodafone made no profit in the deal, the question of interest and penalties on back taxes does not arise.
Mr Chidambaram has indicated his desire to reverse the decision as soon as possible, even before the next budget when, normally, amendments to the Income Tax Act are undertaken. He reckons investors will return to the table once the fog over retrospective taxes is lifted.

Consider the following assumptions.
1. The Supreme Court has ruled in favour of Vodafone mainly because the law does not allow for a case against the latter.
2. The tax claims that are being made should be rightfully made against Hutchison and not Vodafone.
With reference to the above passage which of the following assumptions is/are valid?

The problem with backdating taxes is that the taxpayer will have to continuously guess how much of his current income will be taken away at a later date. This is the crux of the Parthasarathi Shome committee report on retrospective taxation of cross-border acquisition of Indian assets, like Vodafone ’s $11.2 billion purchase of Hutchison ’s stake in the country ’s third largest telecom service provider in 2007.
The Supreme Court in January ruled against the taxman, who was claiming Rs. 11,200 crore in tax, penalty and interest. The court conceded that Indian law was incapable of plugging a widely used tax dodge by inbound foreign investment. The message for the government in the verdict was that the law needed to be changed to curb treaty shopping, the practice of routing investments through letter-box companies in havens like Mauritius to avoid paying taxes in India.
Presenting his last budget in March, the then finance minister Pranab Mukherjee, altered the Income Tax Act to tax such deals with retrospective effect. His argument was since the court felt the intent of the law was not clear, it had to be explicitly clarified for the entire past life of the Income Tax Act, which was enacted in 1962. This last bit - that deals done earlier could be taxed - raised a chorus of protest from the investing community, and the finance ministry under P Chidambaram sought an independent review of its stand. Mr Shome, a tax expert of international standing, has now told the government what it knew all this while: taxes in retrospect are best avoided.
Specifically, they must never be used to merely raise tax revenue. In the Vodafone case, the Shome committee is unequivocal: the company to claim tax from is Hutchison, which made the profit from the sale of its stake in the telecom company. Vodafone was not required by the extant law to withhold capital gains tax. Since Vodafone made no profit in the deal, the question of interest and penalties on back taxes does not arise.
Mr Chidambaram has indicated his desire to reverse the decision as soon as possible, even before the next budget when, normally, amendments to the Income Tax Act are undertaken. He reckons investors will return to the table once the fog over retrospective taxes is lifted.

As per the information in the passage, the author is most likely to agree with which of the following?

The problem with backdating taxes is that the taxpayer will have to continuously guess how much of his current income will be taken away at a later date. This is the crux of the Parthasarathi Shome committee report on retrospective taxation of cross-border acquisition of Indian assets, like Vodafone ’s $11.2 billion purchase of Hutchison ’s stake in the country ’s third largest telecom service provider in 2007.
The Supreme Court in January ruled against the taxman, who was claiming Rs. 11,200 crore in tax, penalty and interest. The court conceded that Indian law was incapable of plugging a widely used tax dodge by inbound foreign investment. The message for the government in the verdict was that the law needed to be changed to curb treaty shopping, the practice of routing investments through letter-box companies in havens like Mauritius to avoid paying taxes in India.
Presenting his last budget in March, the then finance minister Pranab Mukherjee, altered the Income Tax Act to tax such deals with retrospective effect. His argument was since the court felt the intent of the law was not clear, it had to be explicitly clarified for the entire past life of the Income Tax Act, which was enacted in 1962. This last bit - that deals done earlier could be taxed - raised a chorus of protest from the investing community, and the finance ministry under P Chidambaram sought an independent review of its stand. Mr Shome, a tax expert of international standing, has now told the government what it knew all this while: taxes in retrospect are best avoided.
Specifically, they must never be used to merely raise tax revenue. In the Vodafone case, the Shome committee is unequivocal: the company to claim tax from is Hutchison, which made the profit from the sale of its stake in the telecom company. Vodafone was not required by the extant law to withhold capital gains tax. Since Vodafone made no profit in the deal, the question of interest and penalties on back taxes does not arise.
Mr Chidambaram has indicated his desire to reverse the decision as soon as possible, even before the next budget when, normally, amendments to the Income Tax Act are undertaken. He reckons investors will return to the table once the fog over retrospective taxes is lifted.

Consider the following statements:
1. Vodafone bought Hutchison ’s stake in the year 2008.
2. The then Finance Minister Pranab Mukherjee did not alter the Income Tax Act.
According to the above passage, which of the statements is/are valid?

The problem with backdating taxes is that the taxpayer will have to continuously guess how much of his current income will be taken away at a later date. This is the crux of the Parthasarathi Shome committee report on retrospective taxation of cross-border acquisition of Indian assets, like Vodafone ’s $11.2 billion purchase of Hutchison ’s stake in the country ’s third largest telecom service provider in 2007.
The Supreme Court in January ruled against the taxman, who was claiming Rs. 11,200 crore in tax, penalty and interest. The court conceded that Indian law was incapable of plugging a widely used tax dodge by inbound foreign investment. The message for the government in the verdict was that the law needed to be changed to curb treaty shopping, the practice of routing investments through letter-box companies in havens like Mauritius to avoid paying taxes in India.
Presenting his last budget in March, the then finance minister Pranab Mukherjee, altered the Income Tax Act to tax such deals with retrospective effect. His argument was since the court felt the intent of the law was not clear, it had to be explicitly clarified for the entire past life of the Income Tax Act, which was enacted in 1962. This last bit - that deals done earlier could be taxed - raised a chorus of protest from the investing community, and the finance ministry under P Chidambaram sought an independent review of its stand. Mr Shome, a tax expert of international standing, has now told the government what it knew all this while: taxes in retrospect are best avoided.
Specifically, they must never be used to merely raise tax revenue. In the Vodafone case, the Shome committee is unequivocal: the company to claim tax from is Hutchison, which made the profit from the sale of its stake in the telecom company. Vodafone was not required by the extant law to withhold capital gains tax. Since Vodafone made no profit in the deal, the question of interest and penalties on back taxes does not arise.
Mr Chidambaram has indicated his desire to reverse the decision as soon as possible, even before the next budget when, normally, amendments to the Income Tax Act are undertaken. He reckons investors will return to the table once the fog over retrospective taxes is lifted.

Consider the following statements:
1. The Income Tax Act was enacted in 1963.
2. Mr. Parthasarathi Shome was an economist. According to the above passage, which of the statements is/are valid?

India ’s balance of payments is back in surplus. Important as this development has been in the management of the external economy, it is unwise to exaggerate its significance. The level of deficit is still way above what is considered prudent and manageable. Besides, the fall in the Current Account Deficit (CAD) is due to all the wrong reasons —falling imports that corroborate the slowdown, and decelerating exports. The outlook for software export earnings is not bright amidst the global slowdown. Expressed as a percentage of GDP, the CAD has fallen from 4.5 per cent to 3.9 per cent. Most experts have projected the CAD for 2012-13 at 3.5 per cent or lower, on the basis of certain key assumptions: that the economy will grow at a reasonably fast clip of around 6.5 per cent; oil prices will not go very much higher than current levels of around $100 a barrel; and most important of all, the actions of the European Central Bank and the Federal Reserve will help in bringing economic growth in Europe and the U.S. back on track. The last point will have an all-round bearing on India ’s external economy. It could help India ’s faltering exports regain traction. Second, there would be far less uncertainty on the movement of capital flows to India.
There is of course a flip side to all of this. India ’s growth has already slipped by most accounts to below five per cent. The cheap money policy of the Federal Reserve will boost inflation worldwide. Although it is customary to view the CAD on a par with the fiscal deficit —the menace of twin deficits as they are usually referred to —it is the latter that has received greater attention. Besides, the government seems determined to adopt questionable means to finance the deficit rather than be proactive in reining it in. For instance, recent announcements to ease external commercial borrowings and encourage capital market flows from abroad might have had the intended effect of boosting stock prices. But these are not sound policies from the point of view of the macroeconomy. Encouraging foreign currency borrowing to take advantage of the surfeit of funds circulating abroad is hardly the right strategy for an economy whose level of short-term debt has been rising and exchange reserves falling.

Why does the author feel that it is too early to place a positive significance on the surplus balance of payments?

India ’s balance of payments is back in surplus. Important as this development has been in the management of the external economy, it is unwise to exaggerate its significance. The level of deficit is still way above what is considered prudent and manageable. Besides, the fall in the Current Account Deficit (CAD) is due to all the wrong reasons —falling imports that corroborate the slowdown, and decelerating exports. The outlook for software export earnings is not bright amidst the global slowdown. Expressed as a percentage of GDP, the CAD has fallen from 4.5 per cent to 3.9 per cent. Most experts have projected the CAD for 2012-13 at 3.5 per cent or lower, on the basis of certain key assumptions: that the economy will grow at a reasonably fast clip of around 6.5 per cent; oil prices will not go very much higher than current levels of around $100 a barrel; and most important of all, the actions of the European Central Bank and the Federal Reserve will help in bringing economic growth in Europe and the U.S. back on track. The last point will have an all-round bearing on India ’s external economy. It could help India ’s faltering exports regain traction. Second, there would be far less uncertainty on the movement of capital flows to India.
There is of course a flip side to all of this. India ’s growth has already slipped by most accounts to below five per cent. The cheap money policy of the Federal Reserve will boost inflation worldwide. Although it is customary to view the CAD on a par with the fiscal deficit —the menace of twin deficits as they are usually referred to —it is the latter that has received greater attention. Besides, the government seems determined to adopt questionable means to finance the deficit rather than be proactive in reining it in. For instance, recent announcements to ease external commercial borrowings and encourage capital market flows from abroad might have had the intended effect of boosting stock prices. But these are not sound policies from the point of view of the macroeconomy. Encouraging foreign currency borrowing to take advantage of the surfeit of funds circulating abroad is hardly the right strategy for an economy whose level of short-term debt has been rising and exchange reserves falling.

Which of the following has not been mentioned as an incorrect strategy in the current economy?

India ’s balance of payments is back in surplus. Important as this development has been in the management of the external economy, it is unwise to exaggerate its significance. The level of deficit is still way above what is considered prudent and manageable. Besides, the fall in the Current Account Deficit (CAD) is due to all the wrong reasons —falling imports that corroborate the slowdown, and decelerating exports. The outlook for software export earnings is not bright amidst the global slowdown. Expressed as a percentage of GDP, the CAD has fallen from 4.5 per cent to 3.9 per cent. Most experts have projected the CAD for 2012-13 at 3.5 per cent or lower, on the basis of certain key assumptions: that the economy will grow at a reasonably fast clip of around 6.5 per cent; oil prices will not go very much higher than current levels of around $100 a barrel; and most important of all, the actions of the European Central Bank and the Federal Reserve will help in bringing economic growth in Europe and the U.S. back on track. The last point will have an all-round bearing on India ’s external economy. It could help India ’s faltering exports regain traction. Second, there would be far less uncertainty on the movement of capital flows to India.
There is of course a flip side to all of this. India ’s growth has already slipped by most accounts to below five per cent. The cheap money policy of the Federal Reserve will boost inflation worldwide. Although it is customary to view the CAD on a par with the fiscal deficit —the menace of twin deficits as they are usually referred to —it is the latter that has received greater attention. Besides, the government seems determined to adopt questionable means to finance the deficit rather than be proactive in reining it in. For instance, recent announcements to ease external commercial borrowings and encourage capital market flows from abroad might have had the intended effect of boosting stock prices. But these are not sound policies from the point of view of the macroeconomy. Encouraging foreign currency borrowing to take advantage of the surfeit of funds circulating abroad is hardly the right strategy for an economy whose level of short-term debt has been rising and exchange reserves falling.

Which of the following options has/have not been taken into account while projecting the current account deficit for 2012-2013?
1. The rate of growth of the economy will occur at much more than 6.5 per cent.
2. The European Central Bank ’s measures will bring in positive economic change in Europe.
3. Oil prices will finally settle at a higher rate than the current $100 per barrel.
With reference to the above passage which of the given statements is/are valid?