Budget Must Ease Tax Rules

The global economic outlook seems uncertain. With oil prices tumbling, a slowdown in the Chinese economy and devaluation of yuan, a general question today is what might be the potential impact on India. With the current Indian demography and a stable government at the centre, India has the potential to capitalise on this opportunity. Budget 2016 needs to focus on simplifying tax regulations and provide for increasing the rural demand for goods and services, attracting foreign investment, facilitating Indian corporates in their expansion plan and lay the ground for an export conducive environment.

To start with we can expect a reduction in the corporate tax base rate of 30%. Earlier, the government had proposed to phase out the profit-linked incentives from April 2017.Given the need to attract foreign investment and push corporates towards expansion, the government may want to reconsider and defer this phase-out plan. Further, with the reducing difference between the base corporate tax rate and MAT base rate, such tax holidays may not be very attractive.

There is a need to streamline MAT regime. Next, the focus should be on simplifying the tax regime. Currently , taxation, with its many areas, is subject to multiple interpretations. There are many industry-wide tax issues wherein different officers in different jurisdictions have taken various positions.The government needs to set up a panel which would address specific industry issues. The government should consider the recommendations issued by the Easwar committee whose report suggests the simplificationdeletion of various provisions under the Indian tax law, namely provisions relating to definition of a capital asset, disallowances of expenses relating to exempt income, deferment of the Income Computation and Disclosure Standards (ICDS), resolving practical difficulties in obtaining a lower deduction under Section 197 of the Income-tax Act, grant of a timely refund with interest and so on. If these suggestions are implemented, it is expected to bring in certainty in the tax laws. Further, there is a need to increase the tax base.

Declaration under The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 saw a tepid response. An out-of-the-box approach is required for bringing this out of the books money under the tax net.

We also see a need to align to some global practices. Finalising the guidelines on the principles of determining the Place of Effective Management (POEM) of a company would be on radar.

The Economic Times, New Delhi, 20th February 2016