Revive the tax-dispute resolution forum

Jun 03 2014, 04:59 IST
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SummaryFinance ministry must build on the gains made by Shome’s Durbar and institutionalise it

There are very few things which went right in taxation during the second half of the UPA-II regime. One of them would certainly be the forum for addressing tax-related issues, under Partahasarathi Shome, adviser to the then finance minister, P Chidambaram. The deliberations and results clearly show that the new finance minister, Arun Jaitley, must revive the forum at the earliest because the most effective way to tackle tax litigation is resolving the issues before they assume the proportions of a confrontation between the taxpayer and the taxman.

The Shome-led forum was constituted in July 2013 for exchange of views between industry groups and government on tax-related disputes and it had officials from both, the Central Board of Direct Taxes and the Central Board of Excise and Customs, on board. It met every Wednesday and held 18 meetings in total during August-September 2013, identifying 29 issues in direct taxes and 47 issues in indirect taxes for removal of obstacles and issue of clarifications or amendment in the procedures.

A number of administrative issues have been resolved since, through relevant circulars and instructions issued by the two boards, and the revenue department is expected to bring in the suggested legislative changes on various issues in the upcoming budget.

So, the forum has already provided critical inputs for the budget. How effective it can prove to be in handling tax-related issues and restoring confidence in the industry, which has been dented considerably because of the high-pitched transfer pricing adjustments and unnecessary litigation, can be gauged from the outcome of the forum’s decisions.

One of the problems faced by the foreign companies is a lack of clarity on whether a foreign company not having a permanent establishment (PE) in India is liable to pay minimum alternate tax (MAT) or not. According to a ruling by the authority for advance rulings (AAR), MAT needs to be paid even if there is no PE in India. This is against the provisions of the double tax avoidance treaties which say MAT can’t be levied if there is no PE in India. This has led to confusion. The Shome-led forum suggested that the government abide by the treaty norms and clarify its stance. This could be one of the steps in the full budget for FY15 to be presented in July.

Then, there is the issue of taxation of software products. At the forum, the industry brought to the notice of

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