 "Dan Lange")
The winter session of Parliament ended on Wednesday without the Constitution amendment Bill on goods and services tax (GST) being cleared by the Rajya Sabha. The Bill was stuck as the Congress did not relent on its demands, the most contentious of which was including a cap of 18 per cent on the GST rate in the Constitution. Dan Lange, global leader (Tax), Deloitte, who was in India recently, tells Indivjal Dhasmana that the GST rate should not be capped in the Constitution. Edited excerpts:
The Constitution amendment Bill on GST is stuck because the main opposition party wants the GST rate to be capped at 18 per cent and this to be provided in the Constitution. The government has refused saying that if governments - federal or states - need to change the rate, they will have to approach Parliament. What is your take and what is the international experience in this regard?
Considering the time and process involved in amending the Constitution, tariffs are never to be part of the Constitution. Governments should have the flexibility to change tax rates to meet resource requirements.
A government-appointed committee has suggested that a 'sin tax' at 40 per cent be levied on luxury cars and aerated drinks among others. Reacting to this, Coca Cola has said it would have to shut some of its units, to make operations viable. Is there an international example of a similar tax at such a high rate?
Internationally, for certain 'sin goods' like alcohol and tobacco, besides the GST, an additional non-recoverable tax is levied. Thus, while additional tax burden on sin goods is common, the coverage of goods in that category as well as the additional tax to be imposed on such goods need to be seen from the imperatives of each country.
Recently, the Indian government increased the limit for transactions where quoting of permanent account numbers (PAN) is necessary from Rs 1 lakh to Rs 2 lakh. Do you think this would make generation of black money easy?
With the objective of curbing black money, the Special Investigation Team (SIT) had recommended mandatory quoting of PAN for all sales and purchases exceeding Rs 1 lakh. While the Government has implemented this recommendation in principle, the limit has been relaxed to Rs 2 lakh. To reduce the compliance burden, limits with respect to certain transactions have been relaxed. However, PAN reporting will now be required for purchase/ sale of any goods/ services exceeding Rs 2 lakh (including jewellery/bullion for which the previous limit was Rs 5 lakh), cash payment aggregating to more than Rs 50,000 in a year towards cash cards/prepaid instruments, etc. While the incentive to use cash for many such transactions may be lesser due to the PAN reporting requirement, the extent to which these measures will help in reducing black money remains to be seen.
How do global investors view India in terms of their expectations on GST?
The Indian indirect tax system has many disadvantages. There are multiple taxes, each applicable on different tax bases. Tax rates are high and compliance is complex. Global investors, therefore, expect the GST to be simple and transparent with moderate rates of taxation that will not lead to tax cascading.
Are international investors still wary about India as retrospective amendments to the Income Tax Act are still in the statute?
Consistency and predictability of laws are critical to investors. Therefore, the high profile of a number of prior retrospective amendments is still fresh in their minds. The reputation of a country as it relates to predictability takes a number of years to develop and the reputation can be easily harmed when events of retroactivity occur.
Recently, the Cabinet has approved a model Bilateral Investment Treaty, excluding from its ambit tax disputes. Now, no foreign company can invoke the treaty to seek protection. Is this a good strategy?
With the rapid pace of globalisation and changing business models, the amount of cross-border activities are rapidly increasing. Too often, tax authorities question the value of cross-border charges related to regional/global centres of excellence and to the movement of goods across borders. So, the need for binding cross-border arbitration within a specified time period is essential to resolve tax assessments. Thus, it is essential that bilateral investment treaties and income treaties contain provisions to efficiently and effectively resolve differences of opinion between taxpayers and authorities. However, we are seeing the beginning of a turnaround in India.
