The industry in Karnataka as part of its suggestions for the forthcoming Budget has urged the Centre to have a relook at the Minimum Alternate Tax, Transfer Pricing Law among various others subjects. The Bangalore Chamber of Industry and Commerce (BCIC) in its Pre-Budget Memorandum on Direct Taxes submitted to the Union Finance Ministry has also outlined the several concerns of the industry relating to Direct Taxation.
BCIC feels the Minimum Alternate Tax (MAT) which is almost eq-ual to the normal corporate tax rate is operating as a detriment to the economy. “The high rate of MAT, at 20 per cent, has created severe hardship on the cash flow position of the companies which had its deleterious impact on investments. Hence, the chamber recommends that MAT rates are to be rationalised and brought down to 10 per cent in order to restore investors confidence,” a statement from BCIC said. It has also recommended that the provisions of MAT should be withdrawn at least in respect of SEZs which have already been notified so that economic viability of these SEZs is protected. It feels that India should not be seen by global investors as a country which has gone back on its promises.
| BCIC’S CALL ON TRANSFER PRICING LAW * Relax the rigour of the existing provisions to permit the use of multiple year data in all cases; * Permitting the taxpayer to apply statistical tools such as inter-quartile range so that extreme comparables are not considered for the benchmarking; * A TP assessment should be valid for say, three years, similar to the practice being followed under the Customs Law by the Special Valuation Branch; * Increase in the present threshold of Rs 15 crore for compulsory scrutiny to a substantially higher limit of Rs 50 crore. |
On the issue of TDS deducted in excess, BCIC feels that presently, there is no mechanism to adjust the TDS deducted in excess under various TDS sections other than the mechanism prescribed under section 195 leading to substantial administrative hassles. The chamber has recommended that a detailed mechanism to be evolved, allowing adjustment of excess TDS paid against future payments within the same financial year.
On the issue of deductions under section 10A/10B/10AA of the Act, the chamber has said that Section 10A/10B benefits have expired as of March 31, 2011, and the industry is adapting to the twin impact of this sunset clause and an uncertain global environment. However, what is more worrisome is the denial of tax deductions (for previous years) on one pretext or the other, which the exporters of IT services are entitled to. More often, the denial of the deductions is purely on highly technical grounds overlooking the judicial precedents, legislative intent and substance. The chamber recommends the assesee should be allowed eligible deduction and the practice of frivolous additions and denial of eligibility aiming the tax collections should be dispensed with.
Drawing its attention to the Finance Ministry, the Chamber also recommends that Extension of weighted deduction under section 35(2AB) may be extended to IT sector by amending the provisions of section to include ‘information technology” along with bio-technology so that there is a complete clarity that the weighted deduction would be available to an assessee engaged in production of computer software.
The industry body further said that another important taxation policy which is a bone of contention for India Inc is related to the Transfer Pricing provisions. “The law in its present form is quite rigid as compared to the international practices. This rigidity has sometimes resulted in highly theoretical or arbitrary outcomes of the arm’s-length principle (ALP), creating an impediment to a computation of a fair and objective benchmarking exercise. More specifically, the process of computation of the ALP is very inflexible and does not take into account internationally-accepted statistical tools such as application of inter-quartile range and use of multiple year data as a routine time period. In absence of such flexibility, the taxpayer is forced to determine a particular arm’s length price at a particular point in time, which is a bit harsh as a benchmarking always throws a range over a period of time and the results should be in that range,” BCIC detailed.
The chamber therefore has suggested that the Transfer Pricing Law should be amended by relaxing the rigour of the existing provisions to permit the use of multiple year data in all cases, permitting the taxpayer to apply statistical tools such as inter-quartile range so that extreme comparables are not considered for the benchmarking, a TP assessment should be valid for say, three years, similar to the practice being followed under the Customs Law by the Special Valuation Branch and increase in the present threshold of Rs 15 crore for compulsory scrutiny to a substantially higher limit of Rs 50 crore.
The process of Dispute Resolution Panel (DRP) though introduced with a noble intention of resolving the disputes has not achieved much desired results, BCIC noted. The Chamber recommends that the DRP should be strengthened more aiming to resolve the disputes failing which an important statutory institution will become redundant if DRP is merely confirming the orders of Assessing Officer.
The Chamber also drew its attention towards the Non Corporate Taxation. It has suggested that the maximum rate of 30 percent is made applicable over an income of Rs.8 lakhs at present, but not over Rs.25 lakhs as was proposed in the DTC initially, which had raised euphoric hopes of low personal taxation in India.
BCIC recommends that the slab rates are further increased to be in line with the DTC era. “What is particularly worrisome is that the permissible tax saving avenues under the existing Section 80-C has been curtailed significantly,” BCIC felt.
