Seeking to address investor concerns about unexpected tax demands, finance minister Arun Jaitley on Monday reiterated his commitment towards a simpler, non-adversarial and globally competitive tax regime, which he said was essential for tax buoyancy.
Delivering the DP Kohli Memorial Lecture, he said the government does not intend to tax people retrospectively and that it was with the intention of making the corporate tax structure globally competent that a plan to gradually reduce the tax rate from 30% to 25% was included in the Finance Bill, 2015.
Jaitley also said in a column he wrote in The Financial Times that he was considering setting up a high-level committee to address what he referred to as legacy issues in taxation. Close to three dozen disputes at various courts and the tax notices recently served on Cairn UK Holdings and Vodafone arise from India’s 2012 retroactive amendment to the law aimed at taxing past instances of transfer of Indian assets held by offshore subsidiaries of MNCs.
Jaitley wrote in the column that the proposed committee would explore ways to resolve the past, and move beyond it in a way that would provide real predictability and certainty to investors. The committee would make quick reports for early actions. The minister wrote that tax policies were framed for the 21st Century and the tax administration cannot and would not be allowed to lag behind.
Jaitley’s remarks come at a time when the government at the highest level had to intervene and calm FPIs who were served MAT notices treating the capital gains they make from securities trading as business income. Based on a ruling by Authority for Advance Rulings, the tax department issued notices to 68 FPIs for payment of MAT dues totalling Rs 603 crore. Top officials clarified last week that investors from countries with which India has tax treaties could seek treaty benefits and that tax claims will be resolved in a month.
In his lecture here, Jaitley pointed out that it was not just the tax regime that needed re-orientation. Certain provisions in the Prevention of Corruption Act, 1988, needed to be revisited to address the reluctance of civil servants to take decisions for fear of being penalised for unintended errors. “Phrases like “corrupt means”, “public interest” and “pecuniary advantages” have to be redefined in the present context to differentiate between the act of corruption and honest error,” said the minister. The lack of investment in sectors like agriculture and infrastructure are the other challenges. Jaitley said the highways programme has slowed and investment has not come in the railways. “We have to invest Rs 70,000 crore in the infrastructure sector and that is why we have to delay the fiscal road map,” he said.
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