5 Tax Proposals FM Jaitley should implement in Budget 2016

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As FM Arun Jaitley takes the hot seat on February 29th to present Budget 2016-17, taxpayers are on tenterhooks about what lies in store for them. The last one year has seen the government taking swift and significant steps in streamlining tax policy and administration in line with its commitment to ensure a non-adversarial and predictable tax regime. Some noteworthy examples are formation of the IT Act Simplification Committee, introduction of the Black Money Act, implementation of the FATCA agreement with USA etc. However, there are still a plethora of issues – both pending and half addressed – like the fate of GST, implementation/deferral of ICDS & POEM, that await a tangible solution. Further, with the BEPS final reports delivered by OECD in October 2015, it is expected that this year’s Budget will witness the entry of international BEPS proposals into our domestic tax legislation.  

Given the present scenario, what are the 5 immediate action items that FM needs to implement vis-à-vis the tax front in this budget? 

Dinesh Kanabar
CEO, Dhruva Advisors LLP

As it happens each year, there are rumour mills floating this year too on what will the Budget bring about this year. It is interesting, and amusing, to see how stock markets react to such rumours!!  From my perspective, the budget this should address the following areas: 

> there are a few new grey areas which have recently opened up and these need to be addressed.  The provisions of POEM, for example, have proved to be difficult to implement and we still do not have Rules, although a year has gone by.  These provisions need to pushed back.  Similarly, there is need to reconsider implementation of ICDS as has been recommended by the Eswar Committee.  Finally, there is a need to consider whether in the current circumstances, GAAR needs to pushed back....although there is one more year to consider this matter 

> the second set of suggestion is the implementation of the recommendations of the Eswar Committee. ...

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Mukesh Butani
Managing Partner, BMR Legal

There is a lot on FM’s plate insofar as tax policy and reforms are concerned. On Indirect tax front, though push for constitutional amendment is log jammed, I anticipate the FM addressing concerns of tax payers to facilitate seamless credit of all central indirect tax levies. In substance, he may well deliver a central GST and that would be an achievement. Don’t be surprised if he ups the service tax rate and align them closely with the revenue neutral rate suggested by  Dr. Arvind Subramanian Committee. I anticipate that the exercise to address inverted duty structure shall continue in this budget as well.

On Direct tax front, phased reduction in corporate tax rate, accompanied with time bound phasing out of exemptions could be the highlight of the budget.  I anticipate that in light with (Retd) Justice Eshwar Committee recommendations, ICDS implementation will be deferred.  Similarly, given that the POEM guidelines are yet to be finalized, the government will stick to its commitment not to legislate any law retrospectively and hence, it logically makes sense to either defer, if not drop the POEM law altogether.  This year’s...

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Rohan Shah
Managing Partner, ELP

In the Budget, the key messages, that I would be looking for is a strong affirmation of the Government’s commitment to: 

a)     Moving to a rate of taxation for corporate at 25% by 2019;

b)    The introduction of GST with a finite date line;

c)     The creation of statutory mechanism to reduce the quantum of pending and future tax litigation;

d)    A clear message on the legacy issues such as - the issue of indirect transfers to be addressed in a time bound manner. 

All the aforesaid issues will directly impact on the faith of corporates both domestic and foreign in the “India story” and will have a direct nexus with the issues of growth, employment and progress that we are targeting as a nation.  

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Krishan Malhotra
Partner, National Practice Head, Tax, Shardul Amarchand Mangaldas & Co

Union Budget, 2016 is already in print with ritual ‘Halwa Ceremony’ at the press located in North Block. Foreign investors, Indian entrepreneurs and people in general will look forward to tax proposals that can effectively translate its promise for economic growth into action. 

Given the current economic backdrop, Govt. should work towards its policy goals of implementing a business friendly, internationally competitive and predictable tax regime to establish India as a haven of growth in otherwise crises ridden world.  A few tax proposals that may help in achieving positive impact on the economy in my view could be:

1        Support Make in India: Govt. has already undertaken steps to move towards corporate tax rate of 25% and simultaneously phasing out exemptions for which a clear road-map is desirable. Phasing out tax incentives should be complimented with phasing out Minimum Alternate Tax ‘MAT’. Basic recommendations of the ‘Income Tax Simplification Committee’ such as on rationalization of TDS provisions, book keeping provisions and presumptive taxation should be implemented on priority. ICDS should be deferred pending preparedness of Indian businesses. 

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Sudhir Kapadia
Partner & National Tax Leader, Ernst & Young LLP

1. Clear roadmap towards reduction of corporate tax rates from 30% to 25%(this should be inclusive of all surcharges!) starting with a two percent reduction in 2016-17 itself. This will provide the much needed after tax cash flow to stressed corporates to either retire expensive debt or increase capex. Simultaneously ,the Budget should provide clarity on  phasing out of exemptions and incentives whilst retaining certain key ones,for example,on R&D,core infrastructure and exports.

2. Implementing the first part of Justice Easwar Committee report especially by providing clear rules for determination of  capital gains vs business income,rationalisation of TDS provisions,and most importantly,time bound granting of refunds to taxpayers.

3. Ensuring effective functioning of alternative dispute forums like Authority of Advance Rulings by capacity building as well as cooperation at the Authority by Tax Officers representing the Revenue authorities.

4. A Kar Vivad Scheme to try and resolve all pending litigation upto Commissioner level.

5. Streamlining of CENVAT credit rules to ensure seamless availing of credit against excise and service tax liabilities.

Sanjay Sanghvi
Partner, Khaitan & Co

While a lot of changes have already been made by the Government over a period of the last two years, there are still some open issues which the Government needs to address in order to move to a taxpayer friendly regime more quickly. ‘Goods and Services Tax’ (“GST”) has been pending for far too long, and it is time that things move forward on that front. This could be a huge revenue boost which could in turn help in further rationalising income taxes. Some of the issues which should be addressed are: 

1.       The Government should urgently set up additional benches of the Authority for Advance Rulings as announced during the budget speech of July 2014. This would greatly reduce costs for taxpayers, avoid unnecessary delays caused due to pendency of matters and help in speedy disposal of matters thus help in meeting the objective of setting up the Authority.

2.       The Government should consider issuing clear guidelines to make the process of obtaining stay of demand during pendency of appeals a fair and transparent process. This could perhaps be achieved by issuing a circular directing all field officers to follow binding rulings of the relevant...

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