Pending tax issues will be referred to Shah panel: CEA Arvind Subramanian

By: | Published: October 4, 2015 3:11 PM

Legacy tax issues like those involving Cairn and Shell can be referred to AP Shah panel for quick resolution, says Chief Economic Advisor Arvind Subramanian...

Income taxArvind Subramanian said progress has been made on legacy tax issues and hoped to resolve them in the next few months.

Legacy tax issues like those involving Cairn and Shell can be referred to AP Shah panel for quick resolution, says Chief Economic Advisor Arvind Subramanian who feels the old issues that have held back private investments also need to be worked out.

Moving to defuse a row with overseas funds about back- dated tax demands, the government had last month spared foreign portfolio investors (FPIs) from minimum alternate tax (MAT) for the years prior to April 1, 2015.

This followed recommendations of the A P Shah Committee.

“The government set up AP Shah Committee and the MAT on FII thing has been put to rest. The Minister (Arun Jaitley) has also said that we will address legacy issues (like) Cairn and Shell,” Subramanian told PTI in an interview here.

He said progress has been made on legacy tax issues and hoped to resolve them in the next few months.

Cairn Energy plc had on March 10 this year slapped an arbitration notice against the tax demand with rgard to 2006 internal business reorganisation. The government has decided to join the arbitration initiated by British oil explorer over a Rs 10,247 crore tax demand and is considering to appoint its arbitrator.

As regards Shell, in November 2014, the Indian unit of Royal Dutch Shell Plc won Rs 18,000 crore transfer pricing cases against I-T department at the Bombay High Court and the government is yet to take a view on appeal in the case.

Asked if transfer pricing cases will also be referred to Shah Committee, he said, “The remit of Shah panel is open to all legacy issues…. so on need to address basis I think other issues could be taken by Shah panel.”

He said the legacy issues that have held back private investments need to be worked out.

“I think two sectors holding back the economy are private investments and exports. We have discussed this several times. We have discussed this in the Economic Survey as well that the corporate sector is still challenged. It has legacy issues and those that are holding back private investments need to be worked out,” Subranamian said.

Ease of doing business, taxation, public investment and GST law are on all part of the agenda of reforms before the government.

To a question about the complaints from the industry despite a number of measures that have been taken by the government to resurrect confidence, Subramanium said the point is the extent of problem is quiet deep.

He said getting back the economy to 8-10 per cent growth trajectory was possible within the NDA government’s tenure.

“The external environment is quite challenging and our exports have come down. So, these are two factors that are still holding back the economy. That is why… public investment is going to fill in the gap,” he said.

He, however, ruled out possibility of a fiscal stimulus to prop up the economy.

“Fiscal stimulus you provide when you think economy is cyclical and is operating at low potential. But when we are talking about 8-10 per cent sustained growth, we need much more structural policy then cyclically policy. That’s the clear distinction we need to make,” Subramanian said.

He said the government has a “very good” fiscal deficit target. “It is very important for maintaining macro economic stability that we should meet that and I don’t think there is any need for any fiscal stimulus at this stage.”

Finding resources for a fiscal stimulus could be difficult and it could jeopardise macroeconomic stability.

“And as I said we don’t need fiscal stimulus for structural reforms. Fiscal stimulus is not part of our agenda,” he said.

On the priorities for the next Budget, Subranamian said it was a little bit premature to speculate on the proposals.

“In the last Budget the big idea was how to improve investment and we need recalibrate the fiscal path. I think that was the big idea for that budget.

“For the next Budget there are many many important issues and in many areas we need to move forward. So we will be thinking about that. We have lots of consultations and discussions at this stage. We will be making a list of possible ideas. It’s premature to talk about (that),” he said.

Asked about the impact of deficient monsoon on agriculture production, he said it was difficult to assess the situation now but “it would not be like 4 per cent (growth of previous year).”

He said except fruits and vegetables, agriculture commodity prices would not be a source of major concern this year.

“Overall what we need to worry about is not so much huge price inflation but how the farm incomes do because monsoon has not been as good as we hoped and prices are actually down. We need to think carefully about farming,” he said.

On the sectors facing problems, he said power distribution companies and steel sector are stressed and are getting focused government attention.

“But the point is the extent of problem is quite deep, I think there are legacy problems. And specially when economy is slowing down there is still lot of debt,” he said.

Also, roads projects are getting attention and steel is being unblocked.

Despite deficient rainfall, he said late rains have increased the levels. “I think overall, the late rains have helped the reservoir level so rabi (crop) is going to be better than we had feared in September. So overall its very difficult to say but I think growth in agriculture will be more than last year.”

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