Tax Break

Essential reading: State, local fiscal burdens drag on economic recovery, and more

June 25, 2012

Welcome to the top tax and accounting headlines from Reuters and other sources.

* State, local fiscal burdens drag on economic recovery. Connor Dougherty – The Wall Street Journal. State and local government tax collections have improved from the recession years, they only recently regained their pre-downturn peak. Meantime, local governments, which unlike states rely on property taxes, continue to suffer from the big drop in real estate prices. Given political pressure to reduce the federal budget deficit, cities and states are likely to get less help from Washington. If that happens they would have to make up the gap with tax hikes of their own or else live more frugally—what they’re doing now. Link

* Public pensions to give ‘clearer picture’ of finances. Lisa Lambert – Reuters. Public retirement systems will have to make major changes in how they disclose their pension assets and liabilities, under new rules that the board in charge of accounting standards for U.S. state and local governments is set to approve on Monday. The Governmental Accounting Standards Board will vote on the changes at an afternoon meeting. The reforms were proposed nearly a year ago to give more detail on how pensions affect governments’ finances. Link

* IRS whistleblower tax take plunges, senator frets. Patrick Temple-West – Reuters. A report from the U.S. Internal Revenue Service’s troubled whistleblower program said tax collections from tipsters fell sharply last year, prompting a U.S. lawmaker on Friday to say he may delay two Treasury Department nominees until the program improves. In fiscal 2011, the IRS collected only $48 million through the program, down from $464 million in fiscal 2010, the agency reported to Congress on June 15. Link

* Germany builds core group for transactions tax. John O’Donnell – Reuters. Germany will work with a core group of European Union countries on introducing a financial transactions tax, its finance minister said on Friday, after efforts to get an agreement among all 27 EU countries fell short. Finance Minister Wolfgang Schaeuble said 10 countries were prepared to use an EU process known as ‘enhanced cooperation’ to push ahead with developing the tax, which Britain and other states, including some in the euro zone, oppose. Link

* MHRC looks to close 2 percent tax loophole. Kiran Stacey – The Financial Times. Tax officials have hinted they could close the six-year-old loophole which may have allowed wealthy people to reduce their tax rate to just 2 per cent by borrowing money from companies of which they were directors. The UK tax-collecting agency HM Revenue & Customs said yesterday its staff were looking into the scheme, which allows people to borrow large sums from their companies, free of tax. Link

* Tax case defeat weighs on Essar Energy. Mark Wembridge – The Financial Times. Essar Energy’s loss of a tax case in India’s Supreme Court has dragged the oil and power company to a pre-tax loss of more than $1 billion. The London-listed group on Monday said January’s negative ruling had pushed it to a pre-tax loss of $1.1 billion for the 15 months to March 31. January’s negative ruling by the Indian Supreme Court left the energy group liable for $1.2 billion in taxes, which weighed on the shares to such an extent that it dropped out of the FTSE 100 index earlier this year. Link

* Japan risks delay in health, pension reforms over tax debate. Stanley White – Reuters. Japan’s breakthrough deal on sales tax increases, set to be sealed in a parliamentary vote next week, comes at a price of a delay in reforming healthcare benefits and pensions that must be tackled to curb the vast national debt. Parliament’s lower house looks certain to approve on Tuesday a plan to double the sales tax to 10 percent over three years, a first step towards restoring Japan’s fiscal health. But raising taxes will not be enough without proceeding with spending cuts, economists say. Link

* China should raise home ownership tax – think tank. Xiaoyi Shao – Reuters. China should raise taxes on home ownership to target speculators who had recently driven property prices to record highs, the State Information Center, a government think tank, said in comments published on Monday. The center’s remarks come after a group of senior government advisers last week urged Beijing to shore up slowing economic growth by ending restrictions on the property market, and follow May data that suggested China’s home prices may be near a bottom. Link

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