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Revenue Secretary Hasmukh Adhia has called a meeting of tax experts on October 6 seeking innovative tax policy ideas to boost investors' confidence and propel economic growth.
Fast-tracking advance pricing as well as advance ruling cases tops tax experts' list. Among other ideas is the need for tax incentives for the infrastructure sector to revive growth.
The move comes ahead of the 2016-17 Budget at a time when the economic growth slowed down to seven per cent in the first quarter and the rollout of goods and services has been delayed further.
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"The interaction with tax experts has been called to look at new ways to address tax concerns that act as bottleneck to private investment and manufacturing. We are looking at innovative tax policy ideas to revive growth in the economy," said a government official. Adhia took charge as revenue secretary early this month.
The experts called for stability, certainty and simplification of tax policy and quick clearance of the past cases on priority.
Besides, they will pitch for quick rollout of GST and seek alignment of laws to make the tax regime friendly for companies and their subsidiaries. The government is focusing on proving a non-adversarial tax regime to achieve higher growth.
Sudhir Kapadia, national tax leader at EY, pointed out that corporate tax reform will be a key one. While the government is looking at phasing out corporate tax incentives with a sunset clause, Kapadia said benefits must continue for the infrastructure sector and other industries with a long gestation period to aid capital formation in the economy. "The infrastructure sector is not out of the red. Moreover, the lowering of corporate tax by five percentage points over four years will not benefit infrastructure-related companies as they have a long gestation period and will take long to start making profits to benefit from that," he said.
Gross fixed capital formation, a proxy for investment, rose 4.8 per cent in the quarter ended June, nearly half of 8.7 per cent seen in the corresponding quarter of the previous financial year.
In line with the Budget announcement to reduce corporate tax rate by five percentage points to 25 per cent in four years, the government is working on corporate tax incentives, through deductions and exemptions, to be phased out.
Rahul Garg, leader (direct taxes) at PwC, said the government should look to replace corporate tax with a minimum alternate tax (MAT) to simplify the tax regime. The effective corporate tax stands at 23.4 per cent, while the effective rate of MAT is close to 22 per cent. "If the government simply increases MAT rate by one percentage point, then the tax collections will go up. With this, the government could get rid of all disputes."
During his Singapore visit last week, Finance Minister Arun Jaitley sought foreign investments for infrastructure sectors like railways, highways and power, promising better returns.
Advance ruling and advance pricing cases remained a challenge with slow progress, said Kapadia of EY. "The cases that are pending remain very high. Therefore, an important direction will be needed from the government."
There are about 500 advance pricing applications pending with the authority with only 8-10 cases concluded so far.
Saloni Roy, senior director at Deloitte, said the government must set up more benches to ensure effective hearing of advance ruling cases along with quick appointment of officers. "There are one-and-a-half year-old cases that have not come up for hearing yet. It becomes a roadblock of sorts as you cannot commence business as you wait for the ruling. The backlog was created as president was not appointed for six-nine months," said Roy.
She added the government must avoid frivolous litigations as it takes 12-15 years for closure of tax cases, affecting business. "We must note that about 75 per cent of cases get settled in favour of the assessees," she said.
"People should be able to get quick advance ruling. Besides, inter-ministerial matters should be made single window. Today we have multiple accounting standards, so we need alignment of laws to make tax regime simple," said Garg of PwC.
He added that the goods and services tax must come as soon as possible.
"To achieve 9-10 per cent growth in the next four years, the government must announce special fiscal incentives and a one-time boost to laggard sectors like infrastructure, real estate and mining. It will have a multiplier effect," said Rakesh Nangia, managing partner, Nangia & Co.
NON-ADVERSARIAL TAX REGIME
- The move comes ahead of the 2015-16 Budget at a time when economic growth has slowed down to seven per cent in the first quarter and the rollout of the goods and services tax has been delayed further
- The experts called for stability, certainty and simplification of tax policy and a quick clearance of the past cases on priority
- Besides, they will pitch for a quick rollout of GST and seek alignment of laws to make the tax regime friendly for companies and their subsidiaries
- The government is focusing on proving a non-adversarial tax regime to achieve higher growth
