Summarised below are key items on the Budget wish-list of corporate taxpayers.
·Phasing out of tax incentives – Roadmap for proposed reduction of Corporate tax rate
Incentives to research and development units and Special Economic Zones (SEZ) should be continued to boost R&D and exports. Alternatively, incentives should be continued/phased out in rational manner for the balance tax holidays/deductions for investments already committed.
· Place of Effective Management (PoEM) – Tax Residency Test for Foreign Companies
Since the guidelines on determination of PoEM are not yet finalised, applicability of provisions should be deferred. The application of PoEM criteria should be restricted to foreign companies based in tax havens. With respect to principles for determination of PoEM, it is recommended that more subjective, illustrative and simplified guidance be provided for the benefit of taxpayers and tax administration.
· Taxation of Indirect Transfers
The retrospective applicability of provisions should be done away with to restore confidence of foreign investors. The related rules on valuation of assets and significant interpretational issues as to computation of proportional gains, calculation of cost of shares should be clarified.
As SEZ is conceptualised for promotion and growth of exports, the burden of levy of dividend distribution tax and minimum alternate tax be removed.
· Software Payments
The controversy with respect to copyrights v. copyrighted article in context of shrink-wrapped software be laid to rest. In this regard, sale of off-the-shelf/ shrink-wrapped software be excluded from purview of royalty taxation.
· Transfer Pricing Safe Harbours
The rates provided in the existing safe harbour rules are way higher than global expectations. The review of existing benchmarks is required to bring them in line with practical realities and truly achieve its objective of easing the compliance burden and reduce litigation.
· Specified Domestic Transactions
Considering the objective of introduction & coverage of transfer pricing (TP) regulations for specified domestic transactions, tax neutral transactions which do not lead to erosion of tax revenue for Indian revenue authorities should be kept out of the ambit of TP regulations.
· Attribution of Profits to Permanent Establishment (PE)
As the Indian presence of foreign companies is growing, appropriate mechanism for attribution of profits is need of the hour for fair and clear taxation in India. Detailed rules based on internationally prevalent practices should be formulated.
· Service Tax Exemption for Completed Flats/Units
Obtaining completion certificates from competent authorities for flats/units is a lengthy and time consuming job. Therefore, the exemption for completed flats/units should be made available from the date of application to these competent authorities instead of from date of receipt of completion certificate.
· Reversal of CENVAT Credit towards Completed Flats/Units
Currently the sale of completed flats/units is treated as ‘exempt service’ resulting in reversal of unutilized CENVAT Credit availed prior to completion. Since, the said CENVAT Credit was rightly availed, reversal thereof is not required. Therefore, the rules should be amended to provide for non-availment of any credit post date of completion in relation to the completed flats/units instead of asking for reversal of existing CENVAT Credit.
· Exemption should be given from Excise Duty for manufacturing and consumption of Ready Mix Concrete (RMC) at Site
Recently the Supreme Court has held that Central Excise Duty exemption is not available for manufacturing and consumption of RMC at site which is otherwise available for Concrete Mix. Considering the technical similarity between these two products the exemption should be extended even to RMC.
· Alignment of Rules Regarding ‘Import’ & ‘Export’ From/To ‘Head Office’
Any amount paid by a ‘Branch Office’ in India to its ‘Head Office’ outside India is treated as import of service and subjected to tax under RCM. However in reverse situation, money received from abroad is not considered as export of service by the express provisions of Rule 6A of STR, 1994. This surely needs alignment and needs to be brought at par with import of services.
· Rate of interest for delay in payment of service tax to be rationalized
Interest on delayed payment of service tax is in the range of 18% to 30%. This is an abnormally high interest rate and not prevalent in any other tax laws. Therefore, the interest rates should be rationalized so as not to exceed 18%.
· Credit of ‘Swacch Bharat Cess’ should be allowed
Credit in relation of ‘Swacch Bharat Cess’ should be made eligible under the CCR, 2004 and thus related amendment to Rule 3 of CCR, 2004 be made.
The major challenge before the Government is to have a proper mix of concessions/reforms and at the time, focus on reviving growth and manage the fiscal space. All in all, expecting an interesting and action packed budget.
The article is authored by Sagar Shah, Head – Indirect Tax, BDO India and Jiger Saiya, Partner – Direct Tax, BDO India