The re-election of the NDA government is widely seen as an endorsement of its history of bold reforms, however, the burden of expectation is indeed going to be heavier than the last time. All of this, at the back of a global economic slowdown and its related visible impact seen on the domestic economy. Beyond the initial enthusiasm, individuals, industry and foreign investors will now seek a clear direction from the government on putting the economy back on its high growth trajectory and spur job creation.
The government needs to up its ante on the growth agenda by adopting a two-pronged approach – first, continue investing in the big picture to help create a growth-oriented ecosystem for mobilising investments and second address the finer details that can aid in simplifying and bringing certainty to mitigate ongoing issues of taxpayers.
While the rollout of the much-awaited Direct Tax Code (DTC) is viewed as a potential game-changer in the country’s tax and regulatory landscape, Union Budget 2019 in that background, is expected to give the necessary thrust to business sentiments by being the perfect curtain raiser for potentially encouraging times to come. The ’Bigger Bang’ however will possibly be reserved for the new DTC.
Investing in the big picture is a must
Clarify the digital tax conundrum – India has been a frontrunner in implementing digital economy tax measures in the form of Equalisation Levy (EL) and Significant Economic Presence (SEP). There is now an urgent need for these provisions to carry a tighter remit and Union Budget 2019 should help narrow down their focus to make them applicable only to digital transactions and not extending it to physical goods. Further, many terminologies in the SEP provisions such as ‘systematic and continuous soliciting of businesses’, need clear definitions to aid applicability and pragmatic implementation.
A closer look needs to be provided to streamlining digital tax provisions to avoid duplicity. At the moment, certain digital payments such as software royalties are subject to a withholding tax (WHT), whereas services like digital advertising are covered under equalisation levy (EL), thus inhibiting uniformity. The duplicity of tax provisions also impedes the overall objective of creating a more conducive environment for doing business in India. At an overall level, while India has a first mover advantage in digital tax reforms, there is a need to further align with international thinking before moving the country’s digital aspiration forward.
Incentivise growth sectors to step up manufacturing – For growth to sustain, investment in manufacturing is critical and the government should continue incentivising sectors under the ‘Make in India’ initiative to build export competitiveness. The tax holiday benefit to units in SEZs is approaching the sunset clause in 2020 and should be considered for extension to promote exports and create jobs. Investment-linked deductions which have been phased out should also be considered for revival.
Address the finer details that matter
The ‘PANdora’s box of compliances - The requirement for foreign directors to obtain PAN in India (introduced in 2018) has caused undue hardship to foreign nationals, creating apprehensions about additional compliance burden which may be cast on them. This is one such compliance requirement which merits a need for revision and relaxation. This is expected to go a long way to incentivise foreign companies to build and scale in India.
Expediency in the administrative process - Fast tracking routine procedures like obtaining tax refunds, lower/nil withholding tax certificates, effect to the orders of the higher appellate authorities, the rectification of apparent mistakes by tax authorities is critical. The government should consider introducing checks and balances to trigger overdue applications and proceedings in its online system.
Need for legislative clarity – Ambiguous provisions often lead to elongated litigation on account of diverse interpretations. A case in point is the current controversy surrounding tax implications in the hands of a buyer, arising on the issue of shares by a company at a price which is less than the fair market value. To rest the vagaries, the CBDT earlier, issued a circular clarifying that issue of shares was not intended under the purview of this taxation, however, later rescinded this stand through another circular stating that the matter was under consideration of higher courts. Such turnabouts by the administration not only create an atmosphere of litigative uncertainty but also increases the perplexity of taxpayers.
Streamline accounting standards – Ind AS, the new accounting regime sprung up various issues relating to computation of taxes and Minimum Alternate Tax (MAT), since Ind AS involves notional entries owing to fair value accounting. While some aspects were addressed by CBDT back in 2017, clarity is required with respect to the treatment of book entries due to adoption Ind AS, by way of necessary amendment/clarification to MAT provisions levying taxes on book profits.
So as the new FM prepares her debut budget announcements, the question is, in this Cricket World Cup summer, will the FM take this legacy forward and make it an innings for all us to remember!
(The writer is Partner and COO-Tax, KPMG in India)
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Updated Date: Jun 28, 2019 17:57:17 IST