1. ‘Every country has left some space for POEM discretion’

‘Every country has left some space for POEM discretion’

Reiterating the government's commitment to a non-adversarial and investor-friendly tax regime, revenue secretary Hasmukh Adhia has said anti-tax evasion measures like BEPS and the new guidelines for identifying place...

By: | Published: January 4, 2016 12:44 AM

Reiterating the government’s commitment to a non-adversarial and investor-friendly tax regime, revenue secretary Hasmukh Adhia  has said anti-tax evasion measures like BEPS and the new guidelines for identifying place of effective management (POEM) won’t result in any undue hardship to taxpayers. In an interview with Siddhartha P Saikia, Adhia discussed the tax collection trend, the government’s approach towards resolving major tax disputes and the process of widening the tax base. Excerpts:

You had projected a shortfall of Rs 50,000 crore in overall tax revenue in FY16. The mid-year  economic analysis report has painted a rosier picture as it said the additional revenue measures would ensure that the tax collection target (net to centre of Rs 9.2 lakh crore) would be met. Have you re-assessed your internal targets?

The projections in mid-term review are based on macro economic indicators. But, ultimately we would come to know (whether the target would be met) when it is achieved. We have lowered shortfall estimate of overall revenue to Rs 30,000-R40,000 crore instead of Rs 50,000 crore estimated earlier. We will only come to know when the fourth quarter is over. The last set of advance tax of fourth quarter is due on March 15. Out of Rs 7.98 lakh crore collection  target, nearly Rs 3.28 lakh crore could be from advance tax. Till November, overall growth in indirect tax was seen at 10%, without accounting for additional revenue measures.

There is the issue of underlying base (nominal GDP growth) faltering. What are the steps being planned to expand the tax base?

Of course, we are taking measures to bring in more persons under the tax net. We have a target of about 1 crore new tax payers to be added in the current financial year. Till November, we added 37.45 lakh new taxpayers because of these measures. Actually, the number of returns filed is about 3.31 crore and there are another 1.85 crore persons who pay TDS (tax deducted at source). So, you can say there are 5.16 crore income tax payers in the country now. When we talk of widening of tax net, part of it happens automatically because of TDS. TDS provisions are very extensive now.

You have released a blueprint for lifting tax exemptions to prepare the ground for reducing corporate tax rate to 25% over four years. How would the tax cuts be calibrated over the years?

The rate would come down but over a period of four years. We cannot say now how much (the rate) would be reduced (in a particular year), as such decisions are part of the Budget exercise.

There is a fear that the proposed phase-out of tax exemptions could discourage investments.

The sunset date for most tax exemptions is going to be March 31, 2017. It means that for those companies which complete their investments by March 31, 2017 and go into production by this date, all the existing exemptions would continue.  We expect that phase-out plan would expedite the investments in the short term in order to cope up with the deadline.

Would the minimum alternate tax co-exist with the general corporate tax during the period when exemptions are being phased out?

The revenue loss (to the government) on account of exemptions is not going to disappear immediately. The government would get the full gain from exemption phase-out only by 2033. We are closing the window (for those who enter post the sunset dates) . But, people who are already in would get the benefits till the period of their exemptions expires. We cannot say that there would be no need for MAT as soon as exemption window is closed.

You have recently said the government is open to out-of-the-court settlement of tax disputes such as the ones with Vodafone and Cairn. Given the 2012 amendment to the I-T Act regarding indirect transfers, would payment of principal tax amounts be a prerequisite for out-of-the-court settlements?

We have said that the government is open to the idea of conciliation. The liability would remain as long as you don’t agree. We do not want to go into the details now. We   cannot talk on specific cases. I  can say that we are open to the idea of conciliation,  nothing more than that.

What all would be the salient features of the Goods and Services Tax model law?  Have you decided to drop the proposal for a 1% origin-based tax (meant to address revenue concerns of the “manufacturing states”)?

As soon as draft GST law is ready,  it would be put in the public domain. The consultation process is on, and that would take time. Products such as petroleum are part of GST in the Constitutional Bill.  But the GST Council could decide when to bring them into the ambit of GST.

Your transfer pricing audits seem to have become a little more focused, going by the reduction in the income suppression estimates. Initiatives like Mutual Agreement Procedure and Advance Pricing Arrangements have helped boost investor confidence a bit but there are apprehensions over some likely components of  the Base Erosion and Profit Shifting (BEPS) action plan like the Controlled Foreign Corporation Rules  designed to prevent tax deferral by Indian MNCs.   How pro-active are you in implementing the BEPS?

BEPS is an international initiative of OECD/G-20 to which we are fully committed.  Implementation of BEPS will happen in phases.  Once it is fully implemented by all countries, it will not be possible for any multinational company to do treaty-shopping and tax income of all the countries would be protected.  Right now, the MNCs are taking advantage of certain tax haven jurisdictions to escape tax from the country of the residence as well as from the country of source of income.  This kind of double non-taxation will not be possible once BEPS action plan is implemented.

There are concerns over the impact of Place of Effective Management (POEM) rules   on overseas holding companies of Indian MNCs. The POEM rules leave a lot of discretion with the taxman.

POEM guidelines are in line with international practices.  India also must decide its own POEM. So we have done it. I checked other countries’ POEM guidelines and every country has left some space for discretion. If we make everything completely black and white then people would be at disadvantage. There would always be some discretion. It is important for us not to do injustice to anyone.

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