Union Budget: Certainty in tax regime

Right implementation of the measures will hopefully reduce the threat of tax terrorism

Union Budget, Union Budget 2015, Union Budget highlights, Arun Jaitley, Narendra Modi, tax, tax reforms

Dinesh Kanabar, CEO, Dhruva Advisors

The tax proposals contained in the Finance Bill echo the sentiments expressed earlier in the Economic Survey. The theme continues to be that one does not need big-bang changes; what is needed is incremental changes which, if implemented right, will bring about radical change.

As a start, the proposal laid down to form a committee to look at the ease of doing business and to have a re-look at the direct tax laws so as to make it simple are welcome steps. These will help create a right platform for the revival of investment climate.

Laying down a four-year the roadmap with regard to rates of taxes is a step towards stability. There is no point in continuing with exemptions/deductions which fuel litigation and are effectively availed of after years of uncertainty. One would rather have certainty of marginally lower rates of tax than a litigated exemption regime.

The scrapping of wealth tax is a good example of dealing with a problem at its root. The administrative costs of compliance of wealth tax did not support the actual levy. A surcharge on higher income assessees provides better certainty. The anomaly is that the surcharge will be borne by all taxpayers including those who do not pay a wealth tax!

The increase in the exemption limit for transfer pricing provisions from R5 crore to R20 crore will result in several small and mid-sized organisations getting out of the tedious compliance requirements and will minimise the administrative burden. Hopefully, it will also reduce litigation on this score, which had become a sore point for several foreign investors.

The taxation of royalties and fees for technical services earned by foreign companies had been brought down from 30% to 10% and was again increased to 25% a couple of years ago. This is now being rolled back to 10%. This should help technology imports and, given the smallness of quantum, should mitigate tax litigation on this score.

The clarification on some of the aspects of indirect transfers were long overdue and are welcome. What is now proposed is that unless the value of assets in India is more than 50%, the overseas transfer will not be taxable in India. Also, the provisions now seek a pro rata tax in India to the extent that value sits in India.

The clarifications on the taxation of REITs are welcome. While they do deal with some of the concerns raised, we still have unaddressed issues with regard to MAT and stamp duties.

The deferment of GAAR is on expected lines. Like in the case of the UK, we need an extensive dialogue with industry and a framework which will reduce the subjectivity before GAAR is actually implemented. Foreign investors will breathe a sigh of relief on the Mauritius front for the next two years! The clarity on non-application of MAT to FIIs will put an end to the emerging controversy on this score. The flip-side is that the provisions apply only to capital gains earned by FIIs. This will impact other foreign investors and taxation of other income.

The intended provisions for use of credit cards for transactions and the stringent provisions for offshore assets hoard are steps in the right direction for expanding the tax base. These provisions are welcome; one just hopes that these prosecution provisions here are not abused.

The implementation date of GST has been reiterated. A lot needs to happen to ensure that the deadline is met. There are implementation gaps here and one hopes that the government will not let the ball slip.

The Budget is a step in the direction of certainty in the tax regime. Its right implementation will hopefully reduce the threat of tax terrorism.

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First published on: 01-03-2015 at 00:09 IST