Budget 2018: From reduction in corporate tax to GST compliance, KPMG draws up its wishlist
Absence of a standard deduction puts the salaried taxpayers at a disadvantage particularly when the inflation is all pervasive in the economy
It is that time of the year when every person across sectors comes out with a wish list. Lower taxes for individuals, sops in white goods, reduced fares in trains, cinema tickets, etc — the list just keeps growing till the budget is announced. When budget day dawns on 1 February, the finance minister's announcements on various sectors bring cheer to some and there are some who are upset with the tax rise and lack of any sops.
One of the big four auditors in India, KPMG, has come out with its wish list ranging from reduction in corporate tax, incentives for research and development related activities to streamlining GST compliance.
Here is the list:
Reduce corporate tax: The government, in the Finance Act, 2015 had for the first time announced a reduction in the corporate tax rate in a phased manner along with the elimination of exemptions. Since then we have seen the reduction in a selective manner in case of corporate taxpayers. However, the reduction in corporate tax rate does not correspond with the elimination of exemptions across industries. If we have to see a reduction in a true sense like the way it has been done in the US, one could expect the government moving towards reduction of corporate tax rate to 25 percent across the board. This can be further planned to reduce the same to 20 percent in the future to compete in the international market, particularly in view of the recent corporate tax reduction by USA.
Amendment to GAAR: Since the provisions of General Anti-Avoidance Rules (GAAR) have kicked in, it is pertinent to note that they have an overriding effect over the provisions of the bilateral tax treaties. India has signed the Multilateral Instrument (MLI) in June 2017 which also has incorporated measures to amend the bilateral tax treaties dealing with abusive transactions/arrangements similar to that of GAAR. Since there could be a likely overlap of the provisions of GAAR vis-à-vis the anti-abusive provisions of MLI, one can expect an amendment of the overriding provisions of GAAR to re-align the same with the BEPS recommendations under the bilateral tax treaty network or MLI.
Amendment in ICDS: The Income Computation Disclosure Standards (ICDS) were notified by the government and are applicable from Assessment Year (AY) 2017-18. There were many issues with respect to the implementation of ICDS and a writ petition was filed before the Delhi High Court challenging the constitutional validity of ICDS. Recently, the Delhi High Court has pronounced a decision dealing with the constitutional validity of ICDS. The Delhi High Court has struck down certain provisions of respective ICDS which seek to overcome the Supreme Court as well as High Court decisions. Therefore, one may expect certain amendments in the context of overriding provisions of ICDS in the Income-tax Act, 1961 (the Act).
Allow M&A in LLPs revenue neutral: At present merger and amalgamation (M&As) of companies is revenue neutral which facilitates carry forward of tax breaks in the hands of the amalgamated/merged companies upon satisfying the prescribed conditions. However, the same is not applicable in the case of merger and amalgamation of LLPs. In view of the rationalisation of the provisions of direct tax laws, one can expect similar provision for LLPs allowing merger and demerger to be revenue neutral.
Notify regarding residential status of companies: The provisions of Place of Effective Management (POEM) determining the residential status of the companies have been introduced by the Finance Act, 2015. There were several issues that were raised by the stakeholders and the CBDT has come out with clarifications on the same. However, there still remains certain issues which need to be addressed and final clarification in this regard is awaited from the government. In this context, one can expect the deferment of POEM as there still exists a lot of ambiguity in the existing provisions. Further, the government is yet to notify certain provisions of the Act with certain exceptions, modifications, etc, to apply accordingly where a foreign company is said to be a resident in India for the first time.
Abolish MAT: The provisions of Minimum Alternate Tax (MAT) are applicable in the case of a company where the tax payable in accordance with the provisions of the Act is less than 18.5 percent of the book profit. This rate of 18.5 percent is considered to be a high rate, particularly when the exemptions and deductions are being phased out. A likely reduction in the rate of MAT applicable to companies is expected, though the expectation of the industry is the abolition of MAT.
Tax sops for R&D activities: One needs to keep in mind that certain tax benefits such as R&D-related incentives for key priority industries are still the need of the hour if the government is to fulfil the promise of its “Make in India” campaign. In view of India’s quest to upgrade its R&D base and make India a top investment destination for MNCs, one may expect re-instating of R&D related incentives and deductions for specific industries.
Incentivise agriculture and farm sector: The agriculture and the farm sector are substantial contributors to the economy. Incentivising the agriculture and farm sector not only in the form of subsidies but also facilitating the technological advancement of the farm and agricultural sector would also ensure maintaining the growth momentum of the country and could be one of the key changes in the budget.
Streamline GST compliance: While the implementation of GST in India has been one of the most anticipated indirect tax development, there still remain certain areas such as streamlining the GST compliance and improving the GST Network IT Platform which requires immediate attention. Therefore, one may expect changes in these areas. The industry will look forward to the Budget for further simplification of GST in the context of compliance and IT aspects of the law to make it more taxpayer friendly.
Standard I-T deduction for salaried individuals: Introducing standard deduction in case of salaried taxpayers is one of the long-pending demands of the individual taxpayers. In many countries like Malaysia, Indonesia, Germany, France, Japan, Thailand, etc, allowance in the form of standard deduction is available to the salaried employees. The absence of a standard deduction puts the salaried taxpayers at a disadvantage particularly when the inflation is all pervasive in the economy. Thus, a standard deduction is likely to be introduced in the case of salaried taxpayers to at least address the inflationary trends in the economy.
For full coverage of Union Budget 2018 click here.
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