When finance minister P Chidambaram set up a forum mid-July this year to hear industry concerns on tax matters, the industry, even as it pinned some hopes on the venture, was a bit ambivalent. This was because such committees are usually created to buy time, deflect criticism or give issues a decent burial. But two months down the line, the forum led by Chidambaram’s advisor Parthasarathi Shome seems to adopt a realistic approach to issues, by facilitating a structured interaction with industry on tax issues of import.
The process has helped allay perceptions of an adversarial tax administration, buttressed in the last couple of years by its stance on taxing cross-border transactions and the retrospective amendments to tax laws meant to overcome a Supreme Court ruling in this regard.
Proposals on issues concerning about 10 industry sectors including IT-ITES, insurance, manufacturing and foreign institutional investors have been more or less finalised thanks to deliberations at the forum. Demands from the industry so far considered by the Shome forum include exemption to certain businesses from service tax, difficulties in foreign tax credit, optimising minimum alternate tax (MAT), tax treatment of services availed of by establishments in India from foreign branches and treatment of re-insurance as export of services. “The panel’s suggestions will be submitted to the minister in October and a series of decisions for which legislative changes are not required could be expected before November,” said a person privy to the government’s thinking.
What’s different about Shome’s weekly durbar is how the discussion and the resolution mechanism is structured and conducted. Shome, who was also recently asked to lead a panel on tax administration reforms, does not let his work restricted by the rigid bureaucratic framework of the government but ensures it is more interactive, similar to the functioning of Her Majesty’s Revenue & Customs (HMRC), UK, which he had previously served. The forum receives in advance a presentation on the issues to be discussed with industry representatives and studies it with colleagues in the revenue headquarters. Subsequently, Shome, along with two joint secretaries handling direct and indirect taxes as well as directors from the Tax Research Unit of the Central Board of Excise and Customs (CBEC) and the Tax Planning and Legislation wing of the Central Board of Direct Taxes meet industry representatives.
The forum has so far met executives from 11 industries, some of which have demanded exemption from service