5 Tax Proposals FM should present this Budget

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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 provide clarity and fairness to the tax payers.

Transfer Pricing

One of the significant issues faced by Multinational Companies and Indian companies operating in India is with reference to TP disputes. The interpretation of law is often debatable and more significantly is not consistent. This creates significant issues as the tax amounts involved is substantial and it takes significant time to resolve the dispute. The government before the commencement of next audit for TP issues should come out with detailed guidelines on all the possible transactions and circulate a position paper. Further the government should form a Permanent Task Force representing Revenue members and Industry members to formulate guidelines which should be implemented by revenue official during audit. Often, the positions adopted by Revenue Authorities are incorrect and creates an impression that TP adjustments are focused on amount of adjustment rather than basing on time tested legal principles. Further the government should also implement safe harbor provisions for some of the transactions which would reduce or minimize the disputes.

Manufacturing sector: Let’s create the stimulus!

There is one sector which has not been given adequate importance – and which has the potential to give the much needed fillip to the Indian economy. – the manufacturing sector should be one of the priority segments. There are many ways that the government can support this sector – for example, the tax incentives which are appropriate for revival of Manufacturing sector and Capital Goods sector should be introduced. The tax incentives which were provided in Draft Manufacturing Policy tabled last year should be accepted.Reintroducing investment allowance to revive the capital goods sector will also be a step on the right direction.

Need of the hour: streamlining the Alternative Dispute Resolution Process

There is unanimous agreement on the fact that the Dispute Resolution Process in India has not been successful.  Litigation in India is time-consuming, the issues are always alive and disputes difficult to settle. Due to this, significant amounts are blocked and it increases the hidden cost for global companies operating in India. The time has now come for the government to consider how to streamline the dispute resolution process. It is imperative that the DRP process be strengthened. This should be done with a view to resolve the disputes - not with an intent to collect tax but with a fair and open mind.