5 Tax Proposals FM should present this Budget


6 months ago, when Finance Minister P. Chidambaram sat on the hot seat, he promised a non-adversarial tax regime. This announcement was promptly followed by the Shome Committee report on GAAR and retrospective amendments, ultimately leading to deferral and toning down of GAAR provisions. What more does the FM need to do vis-a-vis the tax front, on Budget day - Feb 28th, to inspire India INC and restore investor confidence?

Mr. K.R. Sekar
Partner and Leader International Tax - Deloitte

The government needs to pull something special out of the proverbial magician’s hat to get the economy back on track. With lower than expected GDP growth rates and unpromising IIP figures, the picture is far from rosy. What steps should the government take to revive the flagging economy, with pushing up inflation numbers? How should it restore international confidence in the India story?

A few potential ideas have been shared with you.

Now or Never: Revive Global Interest in India!

A key driver for India’s economy is continued global investments. Budget 2012 saw the proposed introduction of the proposed GAAR and retrospective amendments. The caused significant discussion and debate and was seen in a negative light by the international investing community. The government should clarify in this budget that the retrospective amendments which made part of the budget 2012 and which created an adverse image for India Growth story should be removed. All the amendments should be made effect prospectively. Further there should be a dialogue with the stakeholders on the amendments  - for example the  GAAR report and Report on Technology Industry. The amendments should be aimed not just augmenting the revenue but should...

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The Global economy is facing challenging times with stagnation in growth. Consequently, Indian economy is also feeling the pressure and growth is getting impacted. Considering this, the Finance Minister has a tough job of containing rising fiscal deficit and inflation and also maintain growth.

Last year's Budget created lot of negativity with restrospective amendments on indirect transfer, taxation of royalties and technical service fees and possible introduction of GAAR. The Govt was quick in reading sentiments and initiated steps in addressing concerns of investors by appointing Dr Shome Committee and IT/ITeS Committee to look into these and make appropriate suggestions. One could see seriousness in the approach with time bound action steps. This has created positivity and helped restore confidence which will help to improve investment climate.

Considering challenges, one would expect to see the FM focus on areas to improve growth and provide incentives for investment.

> The Infra sector in general is lacking incentives and facing growth challenges. It will be appropriate to provide accelerated depreciation on Infra capital investments and possible reintroduction of investment allowance which has been a demand from industry. Parallely, FM would be advised to reconsider reducing or removing...

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Mr. Anish Mehta
Head - Tax & Regulatory Services, Haribhakti & Co.

The stage is set - On February 28, 2013, our Finance Minister (‘FM’) P. Chidambaram would put forward Budget Proposals of FY 2013-14 as not only the country, but also global investors, look on with hopes pinned on this man – who has promised a non-adversarial tax regime.

The year gone by has witnessed events which have portrayed a rather gloomy picture of the Indian growth story and created negative vibes about the overall state of affairs. Investor confidence, sustainable economic development, sound governance policies and certainty in legislature constitute the four pillars of a growth driven economy. The year 2012 has seen the Indian economy facing serious challenges on all four fronts. In an unpleasant shock, India’s economy is projected to grow 5% in the current fiscal year, the lowest in a decade, and substantially lower than the 5.7% projected earlier by the Finance Ministry.

With the challenge of India’s expectations for tax reforms, which bring about certainty on one end, and managing the fiscal deficit on another; our FM would sure be walking a tight rope, and here are some tax proposals our FM must present this Budget:

1. Accountability and Transparency: Year...

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Mr. Nihar Jambusaria
Sr. Vice President-Taxation, Reliance Industries Limited

Omission of S.73A with the object of making S.35AD compatible with the provisions in the Direct Taxes Code (DTC)

The DTC does not ring fence losses of specified business whereas the Income Tax Act does. If the object of granting weighted deduction u/s.35AD at 1 ½ times of the expenditure incurred is to be achieved in letter and spirit, S.73A be omitted with effect from A.Y. 2012-13.

Expenditure on Specified Business

Section 35AD was introduced with effect from A.Y. 2010-11 to switch over from profit linked incentives to investment linked incentives under the Income Tax Act, 1961 as the profit based incentives were distorting the tax base. Investment based incentives do not put the Government in a disadvantageous position as these incentives only postpone the payment of taxes and give relief to the tax payers in the initial years by granting deduction for the CAPEX which would have been otherwise allowed by way of depreciation over a longer period.

Accelerated deductions were allowed under Section 35AD of the Income Tax Act for specified core businesses with effect from A.Y. 2010-11 with a view to creating rural infrastructure. This incentive should be provided to other...

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Ms. S. Gayathri
Senior VP & Group Head - Tax, Essar

Clearly, the underlying message to be conveyed through Budget 2013 is one of assurance and inspiration to investors, both foreign and domestic. This needs to be in the form of a) undoing certain obviously undesirable provisions b) introducing certain fiscal incentives, reliefs etc, to boost investor confidence and the economy at large, and c) desist from bringing in onerous provisions (as are being reported in the press) at this point in time, keeping in mind the present economic slowdown.

More specifically, the following, amongst others:

The large picture

1) To rollback the retrospective provisions particularly with reference to indirect transfers, transfer pricing and royalties. And in respect of indirect transfers on a prospective basis, clarity be provided on aspects like threshold, and inclusion of the indirect transfer situation in certain exemption provisions such as section 47 (via).

2) Taking cue from the UK and other developed economies, providing the framework for introducing comprehensive regimes that retain and attract investors – eg

• Headquarter regime, containing a slew of favorable provisions like lower tax rate, exemption of dividends, interest received from overseas subsidiaries, relief on withholding, exemption from capital gains, carry back...

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