1. Most corporate tax breaks to go from April 1, 2017

Most corporate tax breaks to go from April 1, 2017

Finmin signal of no change in sunset date ends ambiguity

By: | New Delhi | Updated: November 21, 2015 1:12 AM
The roadmap for phasing out corporate tax incentives released by the tax department on Friday however, has suggested withdrawal of major tax breaks from April 1, 2017, rather than from next fiscal.

The roadmap for phasing out corporate tax incentives released by the tax department on Friday however, has suggested withdrawal of major tax breaks from April 1, 2017, rather than from next fiscal.

Finance minister Arun Jaitley, who is planning cut the corporate tax rate to 25% from the current 30% over the next four years, has chosen to remove in one go most of the tax exemptions contributing to a substantial part of the government’s tax expenditure (revenue forgone due to incentives) from April 1, 2017, itself. The roadmap for phasing out corporate tax incentives released by the tax department on Friday however, has suggested withdrawal of major tax breaks from April 1, 2017, rather than from next fiscal.

As per the blueprint, all tax corporate incentives for which no end date has been specified in the law — such as developing special economic zones and setting up units there, construction of highways and production of natural gas and crude oil from specified blocks — will be phased out from April 1, 2017. This is on top of the sharp cuts in the 100% accelerated depreciation now allowed for some investments and the weighted deduction allowed for R&D expenses as well as for agriculture extension and skill development projects, which also kick in from April 1, 2017.

Although not explicitly mentioned in the roadmap, in the case of infrastructure, SEZ and oil and gas industries, those entities that operationalise their facility before the ‘sunset date’ of March 31, 2017, would be eligible for the seven- to 10-year tax exemption for the remaining applicable period as specified in the I-T Act.

Rahul Garg, partner and leader of direct taxes, PwC India, said the withdrawal of exemptions should be in sync with the reduction in tax rate.

“The provisions (in the Income Tax Act) having a sunset date will not be modified to advance the sunset date. Similarly, the sunset dates provided in the Act will not be extended,” said the roadmap.

The extent of the tax incentive — the amount of profits from the specified business that can be deducted from the company’s total taxable income — vary for different industries. These benefits are outlined in sections 80 IA (infrastructure development), 80 IAB (SEZ development), 10 AA (setting up SEZ units), 80 IB (natural gas production from CBM 4 and Nelp 8 blocks) and 80 IB (crude oil production).

Jaitley had announced this February in his Budget speech that the corporate tax would be lowered to 25% over the next four years, accompanied by phasing out of tax breaks as the country presently has the image of a high-tax market although the effective tax rate on account of tax breaks has been as low as 23%. Exemptions have also give rise to tax disputes. The Rs 33,351 crore collected by way of an 18.5% minimum alternate tax on companies that make excessive use of incentives has only helped the revenue department in lowering its revenue forgone to Rs 62,399 crore in 2014-15. Without adjusting for MAT, the figure would touch Rs 98,408 crore.

Riaz Thingna, partner, Walker Chandiok & Co, said that since some exemptions like Section 10A have been designed to encourage substantial capital investment, it would be recommended that higher depreciation rates may be permitted to compensate such units and support investment.

Neeru Ahuja, partner, Deloitte Haskins & Sells, said, “As far as phasing out of tax holidays is concerned, the only worrying element is the future of SEZs. SEZs had ceased to be popular since MAT had been imposed on them, but with this announcement it can be expected that there would be no further investments in SEZs. Other than this, there are not many other tax holidays which were being availed by general businesses.”

The withdrawal of benefits under Section 35AD would mean full or partial deduction of capital expenditure incurred in setting up cross-country natural gas pipelines, hotels, affordable housing, semiconductor wafer factories, fertiliser plants and container freight stations would not be available after 2017.

“The reduction would make the headline tax rate competitive vis-a-vis other nations competing for FDI. The tax base is also expected to be widened because of a lower tax rate. Also, by saying that sunset dates would not be extended, the finance minister has put to rest the expectations and brought out certainty on this aspect,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates.

Ketan Dalal, senior tax partner, PwC India, said the March 31, 2017, sunset date needs more clarity. “Where the relevant activity or project commences on or before March 31, 2017, the incomes beyond that from such activity or project should continue to be exempt for the period envisaged in the exemption, since commercial decisions have been initiated on that basis.”



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  1. Hemen Parekh
    Nov 22, 2015 at 10:41 am
    A GOVT THAT LISTENS ! I sent following suggestion to NDA Ministers / Secretaries and other Policy Makers on 26 Feb 2014 From news-report in MINT ( 21 Nov 2015 ), it seems they do believe this could be one of the many methods to create jobs I await its early implementation But Tax Breaks should not be linked to a Company's annual " ry Bill " These should be linked to : * No of permanent employees , OR * No of NEW hires ( net addition after retirement / resignation / termination etc ) If you too believe likewise , lend your own voice hemen parekh 22 Nov 2015 hemenparekh... > blogs ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ( Source : hemenparekh.. > Blogs / 26 Feb 2014 / Create Wealth to Create Jobs ) To complete this ECO SYSTEM , we need to think " Out of the Box " in the matter of Corporate Tax Regime , as well Current trend in industry , all over the world , is to > Add highly productive , very expensive machinery to " Automate " all manufacturing processes > Reduce manpower by increasing " Capital / IT Intensity " > Hire low skilled workers by transferring higher " Skills " to machinery > Outsource manufacturing to countries where manpower is cheap > Move out of " Manufacturing " and shift to " Services " India cannot swim against this World-wide Trend We must innovate, to not only survive but to grow in this scenario Here is my suggestion : Set in motion , " INVERSION of JOB REDUCTION " regime , under which , " The more jobs a company creates , the less Corporate Tax it pays " ( Incremental ) Example : > Up to employment of 100 persons ...................... 30 % > 101 - 500 persons............................................ 25 % > 501 - 1000 persons ........................................... 20 % > 1001 - 5000 persons ......................................... 15 % > 5001 - 10,000 persons ....................................... 10 % > Above 10,000 persons ........................................ 5 % Let us celebrate those who provide employment to large number of persons Let us celebrate BIGNESS Let us create hundreds of WORLD SIZE corporations and take on the World On top of this , provide additional tax - breaks ( discounts ? ) to corporate as follows : > Average Age of Employees at 30 years....................... 1 % > Ave age at 25 years................................................. 2 % > Ave age at 20 years ................................................. 3 % Of course , very strict and transparent rules will need to be framed to compute, > Number of Employees ( Permanent - not probationers / trainees ) > Average Age ( as on 31 March of Tax year )......etc But , here is an important aspect of this , " Incentivize Job Creation " Scheme Today's labour laws make it extremely difficult - if not impossible - for employers to layoff / retrench workmen , if demand shrinks Hence , to take advantage of this Scheme , employers are unlikely to hire thousands of youth , if they cannot easily trim the workforce , to match the shrinking demand So , an important corollary of this Scheme is to modify our existing Labour Laws to facilitate layoff / retrenchment , when situation so demands , while protecting the interests of the workmen concerned --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ( Source : MINT / 21 Nov 2015 ) New Delhi: The government is contemplating offering tax incentives to companies in the manufacturing sector, including tax deductions on emoluments paid to new employees, to encourage firms to step up hiring and create jobs under its Make in India initiative. The government said it is inviting more suggestions by 2 December on other incentives that it can offer to boost employment generation in the manufacturing sector. It put up suggestions that it has received internally from various government departments and other stakeholders on the mygov website. Suggestions being considered by the government include financial incentives, tax incentives under the Income-tax Act, 1961, and subsidies for equipping employees with job skills, and upgrading and improving employment exchanges. Proposals include tax deductions on several accounts, such as ries paid to employees whose total emoluments are less than Rs.6 lakh per year on hirings exceeding a threshold that’s less than the 10% workforce expansion for which the tax break is available now. This incentive will be offered for three years from the time a new employee is hired. The workforce expansion threshold is proposed to be interpreted liberally; if a company exceeds the threshold in a particular year, it would be carried forward to support eligibility for the tax break in a subsequent year when it falls short of the threshold. The National Democratic Alliance government, which came to power last year promising to step up employment generation for the millions who enter the job market every year, has made the manufacturing sector a key priority. The Make in India initiative is aimed at attracting investment in manufacturing. A government statement said economic growth and the Make in India programme’s prospects would depend on steps it takes to ensure that the investors are incentivized for creating jobs and upgrading the skills of India’s workforce. “The Government of India is taking several measures for promoting the growth of the manufacturing sector in India. The Make in India campaign has been initiated with the view of driving investment in this sector by creating an environment suitable for sustained growth of manufacturing, which will lead to all-round economic benefits including employment generation and income growth,” it added. Ajay Dua, a former secretary with the ministry of industry and commerce, said that given the manufacturing sector has not been able to increase direct employment to the extent it had been expected to, despite the availability of cheaper capital, the proposed tax breaks are worth trying. “This shows the nature of exemptions are changing. The government seems to be trying to achieve the goal of employment growth through fiscal measures, which is desirable,” he added. The government is also examining the possibility of changing an existing condition which requires a worker to have been on the payroll of a company for at least 300 days in a year for the employer to receive the tax break; the number of days may be reduced to 240 days. It is also willing to provide weighted tax deduction for training and skill development, and examine the possibility of reducing an employer’s contribution to social security benefits of new employees for a limited period under which the employer’s contribution could rise from 0% to 100% in a phased manner. It has also proposed sharing data and results of government recruitment examinations to other employers if the applicants agree. Opening government-controlled employment exchanges to public-private partnerships or to the private sector by amending the Employment Exchange Act is also an option

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