ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Staving Off a Coke Famine

 shown that a chain of intercorporate investments, if cleverly forged, can achieve considerable tax saving in certain situations. To this extent, large business groups, especially those which have a large number of companies, get an advantage which is not available to smaller businesses. If reduction of concentration of economic power is one of the broader objectives of tax policy, this advantage should not be allowed to continue. True, some investments would be discouraged thereby but that is a question of laying down priorities and fixing differential effective rates of tax consistent with them. A company engaged in a priority industry should be taxed at less than the standard rate (as is done through development rebate and selective tax holiday) so that it would be able to make larger profits aod distribute larger dividends to attract fresh investment. Tax policy stops at this point; it does not have to be concerned with the status of the shareholder. This argument supports Bhoothalingam's plan for confining tax holiday benefits to companies and withdrawing them from shareholders. At present shareholders of a company eligible to tax holiday enjoy exemption from tax on dividends from the company. Bhoothalingam has recommended .that while the tax holiday be made more effective for companies, dividends distributed by these companies should be taxable in the hands of the shareholders in the usual course. The concern of fiscal policy is with the direction of investment, not the manner in which controlling and other investments are held.

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