Possible Tax Reforms under Modi led Government

India is hoping that the Narendra Modi-led government will take tough policy decisions essential to revive growth in the South Asian economy.

Subramanian Swamy, the right-wing Bharatiya Janata Party member who is likely to find himself in a key policy role in Mr. Modi’s government, spoke to The Wall Street Journal about the immediate economic priorities for the incoming government, including putting an end to what he calls, “tax terrorism.”

The Wall Street Journal: What will be some of the economic priorities of the government?

Subramanian Swamy: The priority for the government will be to rectify the budget, which is a complete mess. You are on the verge of either a financial blowout or a bankruptcy. So, we have to get resources from extra budgetary sources, such as auctioning of 2G, 3G, 4G spectrum, which are presently being given away at throwaway prices.

Besides auctioning natural resources, the government should also reduce taxes so that growth increases. We also need to make agriculture globally competitive. As of now, the price of agricultural products in India is the lowest in the world. Yield per acre is also one of the lowest in the world. So we have to raise farm productivity and also be able to provide a high enough price for farmers to make a profit.

WSJ: What sort of reforms are expected from the new government?

Mr. Swamy: Tax reforms will be the first priority. We will end what we have called “tax terrorism” by the outgoing government. The immediate priority is to boost the rate of savings. We will make savings tax-deductible, including debentures, equities, bonds and time deposits. I have also recommended abolishing income tax.

It also turns out that out of 2,791 commodities that are subject to excise duty, the first 22 give you 90% of revenue. So, why should you put all of them on the list? We will say [to companies] that we are removing excise duty from your commodity, but you will have to pass it on to consumers, so prices come down. We need to reduce taxes on kerosene, petrol and so on. I don’t buy this argument that oil prices abroad are so high and that you will have to subsidize. Take for example petrol, which sells at 75 rupees a liter, but actual cost to petrol retailers is 31 rupees. The rest is all taxes. If we remove the taxes, there will be no [need for] subsidy.

WSJ: Won’t lowering taxes hurt revenue?

Mr. Swamy: Do you know how much we will get from 4G spectrum? How much we will get from coal blocks? We will get 11 trillion rupees [$187 billion] from a coal-block auction alone in one year.

WSJ: You have talked about encouraging savings to provide funds for investments. But is the environment right?

Mr. Swamy: Absolutely. There is only lack of confidence. You see a decisive government create incentives; Indian industrialists are capable of taking advantage. I would also like lower interest rates. That’s why I want the Reserve Bank of India Governor to be removed. [Raghuram Rajan] says I controlled inflation. The interest rate has to be lowered. Otherwise it will be difficult for us to open our door to foreign direct investment.

WSJ: Will the BJP government shut down some of the country’s existing welfare programs?

Mr. Swamy: It’s not a question of shutting down. It’s a question of finding new ways of reaching the people who are just above the poverty line or just below the poverty line. Instead of ration shops, I would prefer coupons for all subsidies, particularly to those who have children going to school. Give them coupons instead of subsidies. So they go to normal shops, buy products and give these coupons in addition to cash.

DTC may undergo a makeover under new govt

We also bring to you latest news from Tax in India. Below is the article published in one of the News Tabloid in India.

 Finance Minister P Chidambaram showed his commitment to the Direct Taxes Code (DTC) by releasing a revised draft of the Bill ahead of the elections, but its fate is in limbo as a non-UPA government might review it afresh or make significant changes to the current draft.

Experts said technically, Chidambaram has completed most of the major steps towards replacing the archaic Income Tax Act of 1961 and if the new government is on the same page, it would, at most, be required to refer the Bill to a select committee after tabling it in Parliament. However, the possibility of a new government junking this version of DTC or incorporating a Parliament standing committee recommendations on exemptions is not ruled out. “The timing (of inviting comments on the draft) is entirely misplaced. What do they hope to achieve? My advice to the bureaucracy is to wait for political guidance,” said senior Bharatiya Janata Party (BJP) leader Yashwant Sinha. The Standing Committee on Finance Chairman, however, added the BJP was in favour of a new direct tax law, as the current legislation had become complex after amendments over the years.

Some finance ministry officials and tax experts, however, said DTC in its current form does not serve any purpose as most of the things it proposed initially, such as General Anti-Avoidance Rules, Advance Pricing Agreements, have been incorporated in the Income Tax Act over the last couple of years.

“No policy is cast in stone. The future of DTC will depend on new economic realities and polices of the next government,” said a finance ministry official, adding the law could be simplified by amending the I-T Act.

Inviting comments on the revised draft of the DTC Bill on Tuesday, the finance ministry had proposed a 35 per cent tax on those earning more than Rs 10 crore, while turning down a Parliamentary Standing Committee recommendation on widening of tax slabs.

While it said widening the slabs was not possible as it would lead to a revenue loss of Rs 60,000 crore, Sinha said deciding the exemption limit should be the prerogative of the next government.

Another major proposal in the revised draft was to make a company liable to tax in cases of indirect transfers like Vodafone, if 20 per cent of its global assets are in India.

“Simplicity is certainly not one of the major features of any of the versions of DTC. The next government at the Centre should be allowed a say in the re-packaging of DTC as the extant DTC Bill lapsed at the end of last session of Parliament,” said Sunil Jain, Partner, J Sagar Associates.

He said the next government should decide the design and construct of a new I-T law and provide more clarity on how indirect transfers would be taxed in India.

Even if the new government accepts the current version and gets it cleared in Parliament in 2014-15, the earliest the legislation can be introduced is April 2016, as one year is needed for framing the rules.

CBDT Chairman hopeful of achieving revised tax target

We also bring to you latest news from Tax in India. Below is the article published in one of the News Tabloid in India.

 

New Delhi, March 24:  

With less than a week to go before this fiscal comes to an end, the Income-Tax Department still has ₹54,000 crore more to collect to meet the revised estimate target set in February.

But the top brass of the Central Board of Direct Taxes (CBDT) is hopeful of meeting this shortfall and also achieving the revised estimate.

“We are hopeful. Our officers are working hard 24x7 this week.

“Even last year, we collected about ₹45,000 crore in the last seven days,” CBDT Chairman RK Tewari told reporters here on Monday.

Till March 22, this fiscal, net direct collections stood at ₹5.82 lakh crore, he said.

Target lowered

At the interim Budget stage in February this year, the direct tax collection target for 2013-14 was lowered by ₹32,000 crore to ₹6.32 lakh crore from ₹6.68 lakh crore.

More refunds

The Income-Tax Department has given more refunds this fiscal than last fiscal, when refunds outgo actually dropped on a year-on-year basis.

The total refund payout by the department till March 22 this fiscal stood at ₹84,993 crore, a 5.3 per cent increase over ₹80,729 crore paid last fiscal.

Advance tax mop-up

Tewari also said that the total advance tax mop-up this fiscal grew 9.06 per cent to ₹2.90 lakh crore (2.66 lakh crore).

There is more advance tax monies to come in the next few days, he said.

Advance tax mop-up saw robust increase in both corporate tax and personal income tax fronts.

While corporate advance tax grew 8.7 per cent, the personal income tax advance tax was up 11.23 per cent.

Banks to remain open on weekend to facilitate tax collection

We also bring to you latest news from Tax in India. Below is the article published in one of the News Tabloid in India.

NEW DELHI: Bank branches will remain open for full day on March 29, 30 and 31 to facilitate tax collection.

While March 29 is a Saturday, March 30 is Sunday and March 31 is the last year of financial year and is a public holiday in some parts of the country.

"The Chairperson, Central Board of Excise and Customs ( CBEC) has requested the Secretary Financial Services to issue instructions to have the banks open for full day on 29th, 30th and 31st March 2014 so that the efforts made for collections of revenue are reflected appropriately," an office memorandum said.

Bulk of the revenue is received at the end of the month, it said, adding banks need to facilitate electronic tax payment by assessees.

In the 2014 interim budget, the government has lowered the indirect tax collection target for the current fiscal by Rs 45,483 crore to over Rs 5.19 lakh crore.
Of this, over Rs 1.75 lakh crore and Rs 1.79 lakh crore is to be mobilised from customs and excise duty collection and about Rs 1.65 lakh crore from service tax.

Tax news : FM push for tax pacts

We also bring to you latest news from Tax in India. Below is the article published in one of the News Tabloid in India.

In an effort to deliver on his promise of offering tax certainty, Finance Minister P Chidambaram is trying to address the transfer pricing woes of multinational companies by inking a few Advance Pricing Agreements (APAs) before a new government is formed after the Lok Sabha polls in April-May.

APAs can help avoid recurrence of transfer pricing disputes between the income tax authorities and MNCs. The tax department is currently embroiled in transfer pricing rows with Vodafone and Shell.

The safe-harbour norms (provision in a statute or regulation which specifies in advance something deemed not to violate a given rule) announced in August 2013 got a lukewarm response from industry, with the finance ministry getting barely 36 applications last year. Chidambaram seems keen on closing a few APAs - a deal between taxpayer and department to decide in advance the pricing of a transaction between an MNC and its group companies in India

"We are at an advanced stage in a few APAs. Every effort is being made to close these before March 31. Wherever companies have come forward with data, we are moving ahead," said a finance ministry official, who did not wish to be identified because of the confidentiality pact with applicants.

Unlike with safe harbour, MNCs have welcomed APAs, with the department receiving 146 applications last year, of which 117 were for unilateral ones. Of these, 142 applications came in the last 15 days. A similar number, mostly for unilateral APAs, have come this year, too; the last day for applying is March 31. Unilateral APAs are between taxpayer and the tax authority in India; in bilateral APAs, the country where the parent MNC is based is also involved.

"Applications have come from all sectors, including information technology, IT-enabled services, media, manufacturing. Some cases have been resolved, some are under discussion. A draft APA agreement has to be approved by the law ministry, following which we will take it forward," said another official involved in the process.

Officials said in the cases at an advanced stage, field visits and most of the fact-finding have been done. It might take only a few more meetings with the assessee to conclude these. It is learnt the finance minister is clearing all the APA files sent to him without any delay, so that some agreements can be finalised during the tenure of the current UPA government.

"About 10-15 APAs are at an advanced stage and at least two to three unilateral APAs might be finalised in the current financial year. No country in the world has finalised APAs so soon. But everything is not in our hands. It depends on the assessee, too," said a third official.

Industry has hailed APAs as a positive step, while denouncing safe harbour, where they feel the margins set by the Central Board of Direct Taxes are "much higher" than the actual profits companies are making. Owing to a poor response, the department is considering overhaul of the safe harbour rules for next year, and a final decision will be taken by the next government. "Currently, safe harbour caters to a limited sector. It needs to include more. Second, the margins prescribed by CBDT are too high. APA is an expensive and long process but it gives you certainty. The rate agreed upon by two parties is fixed for five years," said Rakesh Nangia, managing partner with chartered accountancy firm Nangia & Co.

Foreign investors trading Indian cos' shares abroad won't be liable to capital gains tax

We also bring to you latest news from Tax in India. Below is the article published in one of the News Tabloid in India.

 


 NEW DELHI: After allowing unlisted Indian companies to list overseas, the finance ministry has decided to sweeten the deal for such listings. Foreign investors buying or selling shares of Indian companies listed overseas will not be liable to capital gains tax.
The finance ministry has decided to treat the shares issued by unlisted Indian companies on overseas bourses on par with American depository receipt (ADR) and global depository receipt (GDR) schemes.

"Share issuance on the overseas exchanges would be treated on par with ADR and GDR scheme," a senior finance ministry official told ET.
The Central Board of Direct Taxes, the apex direct taxes body, will soon issue a notification in this regard.
Unlisted companies were allowed to list overseas in 1990, but the government banned such listings in 2005.

This was essentially aimed at preventing export of Indian market overseas and shift in regulatory jurisdiction for such companies to foreign regulators.
High current account deficit and the need for long-term stable capital flows prompted a rethink last year. In September, the government again allowed unlisted companies to list on foreign bourses.
It also brought in a balance in policy as unlisted companies are already allowed to raise foreign debt.
The scheme, launched by the department of economic affairs, will run for two years on a pilot basis.
However, lack of clarity on taxation has held back Indian companies from pursuing overseas listing.
At present, foreign investors trading in ADR/GDRs of Indian companies do not have to pay capital gains tax on their profits. The same tax regime would be extended to this scheme. Experts say a clarification in this regard is welcome.

"This would help the scheme take off. A clarification would give certainty to tax outcomes," said Rahul Garg, leader, direct tax practice, PwC. The clarification would be issued under Section 115AC of the Income-tax Act.
Companies in sectors that are better understood and appreciated overseas can benefit by the scheme, for instance those in the storied information technology sector.
As per the scheme, companies can use capital raised to retire outstanding overseas debt for operations abroad including for acquisitions, but will have to remit the funds raised to India within 15 days if they are not utilised.
The listing company will also have to comply with the foreign direct investment policy and sectoral caps.

Listing has been allowed only on exchanges in IOSCO or Financial Action Task Force-compliant jurisdictions or those jurisdictions with which market regulator Sebi has signed bilateral agreements.