Many of you know about tax free counties which is also called tax haven counties. You might think about how tax free countries earn because there are the countries with no income tax.
There are few countries with no income tax-
- United Arab Emirates (UAE)
In this article, we are going to present insight about how do tax free countries earn/collect revenue in the absence of any taxes.
The way Indian govt earns money from direct and indirect taxes, like Road tax, house tax, income tax, VAT, GST, Excise duty, Import duty, and there are many And that money is used in our development. Before implementation of GST in 2017, Indian govt used to charge multiple indirect taxes which many times caused the cascading effect of taxes.
How tax free countries earn in absence of Income Tax
When we think about the tax haven countries, the first question comes to our mind is- How tax free countries earn and make revenue? and if they are not earning collecting the money then how are they developing and paying govt employees’ salaries and many infrastructure projects etc.
So let me tell you this first way by which these tax free countries collect revenue : Import Export duty is the tax applicable in those tax haven counties. If there is import/export in those tax free countries, their govt will charge tax on them. And in tax-free counties industries tries to come there to build factories, business and make import and export from there.
If we establish a business their then we need to import goods to that country and export. They charge money in this import/export- This is not direct tax This is an indirect tax.
After that If you want to register a company then you have to give a specific amount Which will be repeated every year. Suppose You gave 10,000 in registration Now you need to give 10,000 every year. and there are many industries Where licensing cost is required.
If you want to manufacture a specific thing Then you have to pay for licensing cost too. This may look small but actually it contributes a huge amount. This is just an example. There’s an island and more than 600,000 have been registered there let’s say the population is 1000 And there are around 2000 companies,Why?
Because it’s a tax free country. Here they can earn from registration cost. Now, why these gulf type countries are tax free? Their income is from oil industry so they earn from it. And is used in country’s development.
Now if there’s a country where there’s no import/export neither they have oil-based industry, What they will do?
They earn from tourism. So some countries earn from tourism. Products will be costly in such counties and what they do they charge departure tax.
Means if you are leaving country Like I am going to the Bahamas I traveled there and I need to give departure tax to leave from the Bahamas. These all are examples of indirect tax.
You may not feel like you paid any tax But indirectly you did. There are many countries where we think are free But they are not completely tax-free.
There they have a rebate on income tax. Which is equal to the difference between corporate tax and income tax. for example, If I earn 1 lakh then I have to pay specific interest to govt. This is income tax. If my company earns a specific amount And I need to give tax to govt. this is corporate tax.
So at some places, income tax is not there. In such countries, corporate tax is there. We think it’s a tax-free country but the reality is- That’s an income tax-free country. In USA, there is around 50% corporate tax.
So can our country become tax free?
Not 100%. But if this GST scheme applied properly and every person is paying it properly with proper compliance. If there is no tax frauds and govt receives surplus tax then govt may think to become a tax free country and we can get an income tax rebate.
India has the lowest tax rate globally and we still cry that that’s high. They can add import/export duty. There are not many people from which they can collect tax.
India should Implement GST properly and increase the GST collection. And in this way it can declare our country tax free, But if we think that we want 100% free tax- This is not possible.