India could bring in a law to amend the income-tax Act in the forthcoming winter session of Parliament to completely exorcise the ghost of minimum alternate tax on foreign portfolio investors (FPIs).
Finance ministry officials said the law needs to be changed as soon as possible, rather than wait for the next Budget, because as sessing officers may feel themselves legally bound to take action in cases that will become timebarred by the end of the financial year. Under Indian laws, fresh tax de mands cannot be raised after six years. Even though assessments and tax demands in already processed cases have been put on hold through an administrative advisory, some assessing officers may not consider this to be legally binding. “Bringing a tax law amendment in the winter session is an option being examined,“ said a ministry official, adding that this has been done in the past. A call would be taken soon on the way forward, the official told ET.
Tax experts said there is a need to move urgently.
“One of the apprehensions that could cloud the thought process of a taxpayer is that if the extant law remains, an administrative circular not to levy MAT can be withdrawn. To avoid any such anticipation, (an) amendment is proposed,“ said Pranay Bhatia, partner, BDO India LLP.
“Tax authorities will need to complete the assessments for financial year 2012-13 by March 31, 2016. Accordingly, if the amendment relating to the MAT exemption for FPIs is made as part of the Budget 2016, this could create issues for tax authorities to complete the assessments of FPIs without levying MAT,“ said Rajesh H Gandhi, partner-tax, Deloitte Haskins & Sells LLP.
In other words, if the amendment was made only in the Budget session, field officers would have to rely on an administrative order, which is essentially in the nature of an advisory.
CIRCULAR ISSUED ON THURSDAY
The Central Board of Direct Taxes, the apex body in charge of direct taxes, had on Thursday issued a circular asking field officials to not pursue tax demands for the time being as the government has accepted the recommendations of a panel headed by Justice AP Shah on the issue.
“It has been decided to carry out the appropriate amendment in the Act so as to prescribe that MAT provisions will not be applicable to FIIsFPIs not having a place of businesspermanent establishment in India for the period prior to 1.4.2015,“ CBDT said in the circular. However, it did not say when the amendment would be carried out.
The circular advised field authorities to take into consideration the above position and keep in abeyance, for the time being, pending assessment proceedings in cases of foreign institutional investors or foreign portfolio investors.
“They are further advised not to pursue the recovery of outstanding demands, if any, in such cases,“ CBDT said.
Finance Minister Arun Jaitley had exempted capital gains made by foreign institutional investors and portfolio investors from the 20% minimum alternate tax from April 1, 2015. Since nothing was said about past cases, tax officials issued no tices to FIIs for the past period based on a 2012 ruling by the Au thority for Advance Rulings. The 2012 ruling had said since the in come-tax Act did not make a dis tinction between Indian and for eign companies, MAT was applicable to foreign portfolio in vestors.
According to information pro vided to Parliament, the income tax department had sent notices to 68 FIIs demanding Rs 602.83 crore as dues.
The action by authorities rattled foreign investors who questioned the Narendra Modi government's commitment to provide a stable and non-adversarial tax regime.
Subsequently, the government constituted a panel headed by Shah to look into the issue.
The panel has suggested amend ments to the relevant provisions in law “to clarify the inapplicabili ty of the provisions on FIIsFPIs that don't have a permanent estab lishment or place of business in India“.
Economic Times, New Delhi, 05 September 2015
Finance ministry officials said the law needs to be changed as soon as possible, rather than wait for the next Budget, because as sessing officers may feel themselves legally bound to take action in cases that will become timebarred by the end of the financial year. Under Indian laws, fresh tax de mands cannot be raised after six years. Even though assessments and tax demands in already processed cases have been put on hold through an administrative advisory, some assessing officers may not consider this to be legally binding. “Bringing a tax law amendment in the winter session is an option being examined,“ said a ministry official, adding that this has been done in the past. A call would be taken soon on the way forward, the official told ET.
Tax experts said there is a need to move urgently.
“One of the apprehensions that could cloud the thought process of a taxpayer is that if the extant law remains, an administrative circular not to levy MAT can be withdrawn. To avoid any such anticipation, (an) amendment is proposed,“ said Pranay Bhatia, partner, BDO India LLP.
“Tax authorities will need to complete the assessments for financial year 2012-13 by March 31, 2016. Accordingly, if the amendment relating to the MAT exemption for FPIs is made as part of the Budget 2016, this could create issues for tax authorities to complete the assessments of FPIs without levying MAT,“ said Rajesh H Gandhi, partner-tax, Deloitte Haskins & Sells LLP.
In other words, if the amendment was made only in the Budget session, field officers would have to rely on an administrative order, which is essentially in the nature of an advisory.
CIRCULAR ISSUED ON THURSDAY
The Central Board of Direct Taxes, the apex body in charge of direct taxes, had on Thursday issued a circular asking field officials to not pursue tax demands for the time being as the government has accepted the recommendations of a panel headed by Justice AP Shah on the issue.
“It has been decided to carry out the appropriate amendment in the Act so as to prescribe that MAT provisions will not be applicable to FIIsFPIs not having a place of businesspermanent establishment in India for the period prior to 1.4.2015,“ CBDT said in the circular. However, it did not say when the amendment would be carried out.
The circular advised field authorities to take into consideration the above position and keep in abeyance, for the time being, pending assessment proceedings in cases of foreign institutional investors or foreign portfolio investors.
“They are further advised not to pursue the recovery of outstanding demands, if any, in such cases,“ CBDT said.
Finance Minister Arun Jaitley had exempted capital gains made by foreign institutional investors and portfolio investors from the 20% minimum alternate tax from April 1, 2015. Since nothing was said about past cases, tax officials issued no tices to FIIs for the past period based on a 2012 ruling by the Au thority for Advance Rulings. The 2012 ruling had said since the in come-tax Act did not make a dis tinction between Indian and for eign companies, MAT was applicable to foreign portfolio in vestors.
According to information pro vided to Parliament, the income tax department had sent notices to 68 FIIs demanding Rs 602.83 crore as dues.
The action by authorities rattled foreign investors who questioned the Narendra Modi government's commitment to provide a stable and non-adversarial tax regime.
Subsequently, the government constituted a panel headed by Shah to look into the issue.
The panel has suggested amend ments to the relevant provisions in law “to clarify the inapplicabili ty of the provisions on FIIsFPIs that don't have a permanent estab lishment or place of business in India“.
Economic Times, New Delhi, 05 September 2015
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