Narendra Modi formula: Less hawkish on direct taxes

May 23 2014, 11:51 IST
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Narendra Modi-led NDA govt is likely to take steps to avoid aggressive income adjustments by corporate tax payers. Narendra Modi-led NDA govt is likely to take steps to avoid aggressive income adjustments by corporate tax payers.
SummaryNarendra Modi likely to take steps to avoid income adjustments by corporate tax payers.

Two immediate steps the Narendra Modi-led NDA government is set to take in the area of taxation are ushering in a less hawkish direct tax administration and a technology-driven anti-evasion approach for indirect taxes.

The new government is likely to take steps to avoid aggressive income adjustments by corporate tax payers, including in the area of transfer pricing, that do not stand the test of appeal.

It will try to fix the faltering revenue receipts from indirect taxes, especially excise, mainly by boosting investments into production, said highly placed sources briefed on the new political leadership’s broad thinking on reviving the economy.

Of course, pushing the Constitutional amendment bill on GST and streamlining the GST Network (GSTN), the technology platform for the implementation of the GST, will be high on the Modi government's agenda.

The steps will be complemented by intensified anti-tax evasion measures such as electronic matching of input tax credits claimed by various players across the production value chain, with the invoices issued by their suppliers.

There is little scope for increasing indirect tax receipts by raising tax rates in an economy that has considerably slowed down from previous boom years.

Any larger and innovative measures in taxation would be taken only after broad-based debate and “at the right time,” a BJP functionary told FE.

On the direct taxes side, the retroactive amendment to the Income Tax Act of 2012, aimed at taxing past deals involving indirect transfer of Indian assets such as Vodafone’s 2009 purchase of Hutch Essar, is likely to stay. However, hardships for taxpayers due to the ways laws are interpreted or administrated by field forces are likely to come down.

“For a taxpayer, bad law and bad implementation may appear the same, but before we think of changing the law, we have to see whether our tax laws are consistent with those in other leading economies,” said a finance ministry official privy to the discussions in the new political leadership about the administrative issues to be reviewed and the legislative matters to be taken up immediately.

The official said that problems with the administration should not be identified as problems with the law.

Industry experts said that in many countries, tax law, per se, is more stringent than in India in areas such as taxing profits held abroad without repatriation and imposing exit tax on firms selling assets.

Sources also said that although political parties, including

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