Budget 2013-14 – Fiscal Agenda to Inspire Confidence

We at FICCI presented our pre-budget memorandum for India Budget 2013-14 to the Government of India yesterday. Mr. R V Kanoria, President, FICCI, has suggested a fiscal agenda to instill confidence among trade and industry and augments India’s move to a 8-9% growth trajectory.

Highlights: FICCI’s Pre-budget Memorandum for India Budget 2013-14

The tax policies that we implement and follow go a long way in impacting both domestic and foreign investment in the country and are an integral part thereof. Some of the policy developments have disturbed investors. We, at FICCI, do believe that the ensuing Budget offers a platform to communicate to the investing community that India is willing to offer a stable and consistent tax environment conducive for investment and in conformity with our priorities. The above recommendations are delineated as below:

Implement recommendations of key Committees

The draft reports of Dr. Parthasarathi Shome on GAAR and on retrospective amendment to Section 9 of the Income Tax Act have been received positively by the taxpaying community. FICCI recommends that the final reports of the Dr Shome and Rangachary Committees are placed in public domain and recommendations are acted upon. There is a danger that the deliberations of these Committees will be perceived as one more symbolic exercise with little result to show.

Avoidance of Inheritance Tax

A substantial portion of the resources generated in the post-liberalization era is in listed entities, which are synonymous with the progress of the country. To impose a tax, which could potentially require a promoter to dilute his shareholding in a company merely to pay incidence of Inheritance Tax, is likely to prove to be completely counter-productive. Moreover, inheritance tax could be onerous for illiquid assets – for instance, self-occupied housing where the value of the property may have steeply escalated. FICCI strongly opposes any imposition of Inheritance Tax. Inheritance tax should not, if at all, be imposed in haste and without an extensive debate encompassing the societal ramifications, as these are likely to be significant.

Improving Dispute Resolution Processes

The key concerns of the taxpaying community are the prolonged litigation and the need to make on account payments in the interregnum. The Dispute Resolution Panel (DRP) and the Mutual Agreement Procedure (MAP) in the context of Direct Taxes have not proved effective mechanisms in this regard.

FICCI strongly recommends that a ‘conciliation bench’ should be formed, and which can be approached by a tax payer to help ‘settle’ tax disputes. This will ensure that where a tax payer has already got a favorable resolution of a dispute on a matter, the dispute is not continued in later years. Similarly, non-resident tax payers can focus on quantum of profits attributable to a Permanent Establishment or the adjustment on a Transfer Pricing issue. In respect of Indirect Taxes too, because of pressure of maximizing revenue, show-cause notices / demands are confirmed by the tax officers even when the matter may be legally untenable. The adjudication process take years to conclude and matters get finalized in higher courts. The lengthy litigation processes result into huge litigation cost for the taxpayers.

Apart from suggesting timely adjudication of matters, FICCI has requested that adjudication officers should be disengaged from the duties of revenue collection to minimize the revenue bias.

Granting all pending tax refunds

Tax payers are indeed concerned about the substantial refunds pending at the tax office on account of both Direct and Indirect taxes. There is a spiral here because there is a higher withholding tax and most often tax payers are unable to get lower tax withholding certificates because departments dealing with withholding tax and with assessments within the Tax Office are different and each has their own separate targets. Once higher taxes are withheld, there is a need for a refund and one finds, in practice, that tax offices make high pitched assessments to avoid refunds. We thus get into prolonged litigation and a tax payer has major problems trying to get back funds which are legitimately his. A new internal instruction states that refunds will not be issued if a case is chosen for scrutiny.  This spiral needs to be broken. There is a need to issue instructions or guidance for issue of lower or nil withholding certificates. FICCI recommends that all pending refunds need to be granted forthwith, even when a case is chosen for scrutiny assessment.

No tax on dividends from overseas

Over the last few years, corporate India has emerged as an active global player. Indian business houses have made investments and acquisitions, however, the returns from these investments, when brought to India, suffer tax unlike domestic dividends which are tax free in the hands of the recipients. In the last Budget, the rate of tax was reduced to 15 per cent. FICCI believes that such dividends received out of tax paid profits overseas and subjected to withholding taxes in those jurisdictions, should not be subjected to further tax in India on remittance. FICCI recommends that tax on dividends from overseas be done away with.

Basic customs duties to continue at existing levels till GST is introduced

Domestic Industry continues to suffer from cost disadvantages on account of higher local taxes such as VAT, octroi and entry tax as also due to higher cost of financing and inadequate infrastructure. Domestic industry deserves a minimal level of protection to compete with imported goods. FICCI suggests that the basic customs duties should continue at existing levels till such time a comprehensive Goods and Services Tax is introduced and the cost of financing and cost of infrastructure and transaction costs is reduced to competitive levels.

Provide clarity on newly implemented Service Tax

A comprehensive service tax based on the concept of a negative list of services has been introduced with effect from July 1, 2012. It is an important step towards introduction of GST. However, it is noticed that while the levy is universal in its application (barring the negative list and exemptions); there are restrictions on the availment of Cenvat credit. All input side tax costs forming part of the price of the final output goods or services should be allowed as credit. Further, several doubts have been expressed about the scope of the new levy. Some of the issues requiring clarification have been listed in the memorandum. The Ministry of Finance should issue clarifications on these issues at the earliest to avoid litigation.

Immediate implementation of GST

The recent move by the Finance Minister in reviving the move to introduce GST, sooner rather than later, is indeed welcome. FICCI has strongly supported the introduction of GST and believes that this will go a long way in streamlining the economy and provide impetus to the growth of our GDP. Also, it is important that the framework of GST should encompass the multiple taxes currently levied at the state and local levels and should subsume all of them.

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