Tax Exporting

Posted in Finance, Accounting and Economics Terms, Total Reads: 268
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Definition: Tax Exporting

Tax Exportation is the process of imposing a tax of one jurisdiction or country on the residents of another jurisdiction. This process is more profitable to the residents in the country imposing such tax because their burden of tax decreases.


Rationale:

• Non- residents utilize the services provided by the State Government and should in turn pay taxes

• The natural resources accrue rent due to their usage which has to be paid by both residents and non- residents. Therefore, the non- residents must be taxed for this


Advantages:

• State residents will have lower tax burden

• Policy makers might shift the burden to the non- residents to garner the votes of the residents


Disadvantages:

• The tax is directly shifted to the non- residents but, in turn affects the tax on residents in an adverse way too

Tax can be levied on various sectors for the non- residents such as:

• Tourism

• Residential property tax for non- residents


Example:

Consider the example of tourism industry in India. When the taxes of the State are imposed on the foreign visitors in form of higher ticket rates or other tourist taxes, the visitors would not prefer to come to India. Rather, they would visit Singapore which has a tourist attracting structure. Therefore, the revenue from the tourism industry reduces and the taxes on the residents increase in the form of VAT and GST.

 

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