Tax amendments will hit investment, says CII

Source: Business standard, Apr 20, 2012

New Delhi: The Confederation of Indian Industry (CII) has taken up the issue of retrospective amendments to the Income Tax Act and the General Anti-Avoidance Rule (GAAR) negatively impacting investment sentiments with the prime minister and the finance ministry, the chamber’s new president, Adi Godrej, said on Thursday.

Even as the Reserve Bank of India (RBI) has hinted the scope of future rate cuts might be limited, Godrej, who succeeded B Muthuraman as the president, called for additional reductions of 100 basis points in the repo rate and the cash reserve ratio this year to spur investment.

FIIs on sticky wicket on debt securities too

Source: The Hindu Business line, Apr 5, 2012

Foreign institutional investors (FIIs) may have to pay tax on the profits they make when they sell their investments in debt securities too.

This could happen once Parliament passes the Finance Bill, giving effect to the anti-tax avoidance rules.  Tax experts feel the new rules will not only cover the profits that FIIs make when they sell shares but also debt instruments such as corporate bonds.  Many FIIs now show the profits they make when they sell debt instruments as capital gains and claim treaty benefits on them, to avoid paying any tax.

Service tax norm could make M&A deals costly

Source: LiveMint.com, Mar 28, 2012

Mumbai: Acquisitions made in India could become more expensive if service tax is levied on key elements of a transaction such as non-compete fees that have been excluded from the government’s “negative” list of service tax exemptions.

With a possibility of a 12% service tax on such services, sellers could begin seeking an extra premium to offset the extra tax payout, experts said.

Service tax rate hiked to 12%

Source: Financial express, Mar 16, 2012

New Delhi: Telephone use, eat-outs and other activities will cost more as Finance Minister Pranab Mukherjee today proposed increasing the service tax rate to 12 per cent from 10 per cent and introducing a negative list aimed at bringing more services under the tax net.

“I propose to raise the service tax rate from 10 per cent to 12 per cent … My proposals from service tax are expected to yield an additional revenue of Rs 18,660 crore,” Mukherjee said while presenting the Budget for 2012-13.

Parliamentary panel on DTC suggests wider income-tax slab

Source: Business standard, Mar 14, 2012

New Delhi: A Parliamentary panel has recommended the income tax (I-T) exemption limit be raised to Rs 3 lakh a year in its report on the Direct Taxes Code Bill, against Rs 180,000 at present. Raising hopes of some relief for taxpayers in the coming Budget, the report was tabled in the Lok Sabha on Tuesday. The Bill, which will replace the I-T Act, 1961, is expected to be effective from April 1, 2013.

Panel to look into rising litigations in indirect taxes

Source: The Economic Times, Mar 06, 2012

NEW DELHI: Finance minister Pranab Mukherjee has constituted a committee to suggest steps to bring down litigation in indirect taxes.

“Rising litigation with taxpayers is matter of serious concern for the government. A need for reducing the litigation has been emphasised by the finance minister… As per the directions of the finance minister, a Standing Committee has been constituted in the CBEC to look into the issue,” a finance ministry directive said.

As on March on September 2010, there were 83,213 litigations involving over 59,000 crore of indirect taxes pending before Supreme Court, High Courts, CESTAT and Commissioner (Appeals).

The panel, in the Central Board of Excise and Customs (CBEC), will identify systemic causes for litigation and prepare a roadmap for reducing existing and future litigations on the indirect tax side, the revenue department said.

The committee consists of two members of the Board, nominated officials of CBEC, and a representative of law ministry. A similar committee was also set up for reducing cases related to the income tax. With an aim to generate public feedback, the committee has also sought comments from taxpayers, trade associations and all others till March 31.

It’s Poem time for foreign companies in India

Source: Financial Express, Feb 29, 2012  

With multinationals spreading their arms across global frontiers, the concept of tax residency is gaining momentum and playing pivotal role in structuring their business models. The introduction of Place of Effective Management (POEM) concept in the much-debated Direct Taxes Code (DTC) reinforces its significance in re-designing the laws of residency, since Poem determines the scope of income. The Poem test takes leapfrog from the test of residency under the extant income tax legislation, which provides that a foreign company is resident in the taxable territories, ie in India in any year, if during that year the control and management of its affairs is situated wholly in the taxable territories.

The qualification for the company residency under the prevailing income tax laws is significantly restricted and requires ‘whole of the control and management’ to be situated in India. Part control located outside India at any time during the year is cushion against trigger of residency in India.

The ‘Residency Test’ proposed in draft DTC of 2009, had wide implications due to its skeletal threshold limit provided for foreign companies and could have perplexed the taxation of foreign companies in India, according to which almost every foreign company would have fallen into the Indian tax net, maimn their global income to be taxed. In the revised plan of 2010, Section 4(3) of DTC provides a company to be resident in India if it is an Indian company or its Poem, at any time in the year, is in India.

The revised DTC defines Poem to be the place where the Board of Directors (BoD) of the company or its Executive Directors (ED), make their decisions; or in a case where the BoD routinely approve the commercial and strategic decisions made by the ED or officers of the company, the place where such ED or officers of the company perform their functions.

Although, introduction of Poem test in Indian legislation is an attempt to adopt internationally accepted principles, it is likely to have an impact on companies having Indian branches, foreign subsidiaries of Indian parents, overseas companies having global reporting structure in India, to name a few. Furthermore, the India-headquartered companies having outbound operations should gain grass root understanding of the Poem test and keep their management apprised of all developments to dilute the propensity of risk. Such companies should preempt repercussions of the Poem concept on their transactions that are likely to have an India connection and should take steps to insulate themselves from any uncertain tax positions. Dearth of a proactive approach could act as deterrent at the implementation stage of transactions and can prove to be fatal in terms of interest and penalties.

Realty GST can cut prices 20%, says Kelkar

Source: Business standard, Feb 27, 2012

Mumbai: Inclusion of the real estate sector in the proposed goods and services tax (GST) regime — which seeks to make the whole country a single market — will bring down property prices by a whopping 20 per cent, according to 13th Finance Commission chairman Vijay Kelkar.

“The present system of levying stamp duty on property deals will go away once realty is included in the GST, and our internal studies point out that prices for consumers will come down by 15 to 20 per cent if this is done,” Kelkar told PTI here over the weekend.

India signs multilateral pact for tax co-operation

Source: The Hindu Business Line, Jan 30, 2012

New Delhi: India has signed an international agreement that could be an effective tool to help it combat tax avoidance and evasion.

This agreement — Multilateral Convention on Mutual Administrative Assistance in Tax Matters — is being seen as the ‘gold standard’ for co-operation in tax administration.

This pact was signed at the OECD headquarters in Paris by Mr Sanjay Mishra, Joint Secretary, Central Board of Direct Taxes, in the presence of the OECD Deputy Secretary-General, Mr Rintaro Tamakio.

Mr Jeffrey Owens, Director of the OECD Centre for Tax policy and Administration, said India had moved very quickly since its commitment to the convention at the November G20 meet in Cannes. “I expect that India will be the first non-OECD G20 country where the updated Convention is in force,” he said in a statement.

Budget 2012 to herald changes in line with planned GST

Source: The Economics Times, Jan 23, 2012

NEW DELHI: The finance ministry is likely to introduce a slew of measures in the budget to prepare the ground for the proposed goods and services tax that is yet to be approved by the states.

The indirect tax reforms are expected to withdraw some fiscal stimulus measures, raise excise on diesel cars and cigarettes and switch over to a negative service tax list. This would help the government align taxes with a unified GST, the country’s most comprehensive indirect tax reform, and also raise additional revenue.