Budget 2014: (Retro) taxing times?

Jul 07 2014, 16:48 IST
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SummaryMaking the laws on indirect transfer only prospective (and not retrospective) from the date of introduction.

Little did I know, after having discussed the Vodafone tax case at length in my ISB interview, that all the international professors coming down to teach us here - be it Economics or Finance, would continue to mention it – as if the ‘Vodafone case’ is now termed synonymous with the draconian tax laws and regulatory uncertainty in India!

So is Mr Jaitley, in his maiden budget, promising us a few of these tax reforms?

Making the laws on indirect transfer only prospective (and not retrospective) from the date of introduction.

Providing further clarity on Treaty override to preferred investment jurisdictions like Mauritius (whose tax treaty is under renegotiation) and Singapore (whose tax treaty presently has a robust Limitation of Benefits clause), given that GAAR is set to kick in from 1 April 2015.

Getting fund managers to set up shop here by clarifying that they shall not be treated as Permanent Establishments and their Fund’s income will not be taxed in India. Wouldn’t it in a way expand our tax base through the fund management fees earned here? Not to forget the job opportunities for budding finance enthusiasts like me!

On the micro-economic front, how much merit does lie in making minor changes to the basic exemption limits in a country where only 3-4% of the population pays taxes? Instead the super-rich tax should be introduced and for practicality’s sake, thresholds like a miniscule Rs 800 per month of tax-free transport allowance or Rs 15,000/ 25,000 of medical allowance and a minor Rs 100,000 as 80C deduction should undoubtedly be revised.

Thus, simplified tax laws by speedy implementation of DTC, GST, etc., better tax-administration and reduced protracted litigation (isn’t it alarming to witness a majority of Transfer Pricing disputes of the world taking place in India given how little we contribute to the world trade!) is the need of the hour.

One could only hope for these wishful changes in the wake of BJP’s much propagated “ache din’’ as the wait for Budget 2014 gets better by the day!

Radhika Tambe, Indian School of Business

NOTE: The views expressed are those of the author

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