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Shome durbars chart road map to tax fixes

When finance minister P Chidambaram set up a forum mid-July this year to hear industry concerns on tax matters, the industry

When finance minister P Chidambaram set up a forum mid-July this year to hear industry concerns on tax matters, the industry, even as it pinned some hopes on the venture, was a bit ambivalent. This was because such committees are usually created to buy time, deflect criticism or give issues a decent burial. But two months down the line, the forum led by Chidambaram?s advisor Parthasarathi Shome seems to adopt a realistic approach to issues, by facilitating a structured interaction with industry on tax issues of import.

The process has helped allay perceptions of an adversarial tax administration, buttressed in the last couple of years by its stance on taxing cross-border transactions and the retrospective amendments to tax laws meant to overcome a Supreme Court ruling in this regard.

Proposals on issues concerning about 10 industry sectors including IT-ITES, insurance, manufacturing and foreign institutional investors have been more or less finalised thanks to deliberations at the forum. Demands from the industry so far considered by the Shome forum include exemption to certain businesses from service tax, difficulties in foreign tax credit, optimising minimum alternate tax (MAT), tax treatment of services availed of by establishments in India from foreign branches and treatment of re-insurance as export of services. ?The panel?s suggestions will be submitted to the minister in October and a series of decisions for which legislative changes are not required could be expected before November,? said a person privy to the government?s thinking.

What?s different about Shome?s weekly durbar is how the discussion and the resolution mechanism is structured and conducted. Shome, who was also recently asked to lead a panel on tax administration reforms, does not let his work restricted by the rigid bureaucratic framework of the government but ensures it is more interactive, similar to the functioning of Her Majesty?s Revenue & Customs (HMRC), UK, which he had previously served. The forum receives in advance a presentation on the issues to be discussed with industry representatives and studies it with colleagues in the revenue headquarters. Subsequently, Shome, along with two joint secretaries handling direct and indirect taxes as well as directors from the Tax Research Unit of the Central Board of Excise and Customs (CBEC) and the Tax Planning and Legislation wing of the Central Board of Direct Taxes meet industry representatives.

The forum has so far met executives from 11 industries, some of which have demanded exemption from service tax. Insurance Brokers Association of India wants service tax on re-insurance products removed, claiming their business is akin to export of services as their clients are re-insurers based in financial centres like London and Singapore. There are around 35 insurance brokers providing re-insurance services to companies involved in infrastructure projects, aviation and oil and natural gas exploration projects globally.

The IT sector wants availability of MAT credit in case of amalgamation of companies. It also seeks removal of the 16.2% concessional tax on dividend received by IT companies in India from foreign companies similar to the exemption that domestic companies enjoy on dividend received from other domestic companies. The cascading of dividend distribution tax in case of domestic companies was recently removed, but not in the case of dividend received from a foreign company. Software industry body Nasscom president Som Mittal described the meeting with Shome as structured, productive and collaborative.

The software industry also wants removal of the current limit on foreign tax credit to the 20% (18.5% plus education cesses and surcharge) MAT liability in India saying their actual tax outgo is more than this. ?Credit allowed in India for taxes paid abroad is limited to the amount of income subject to taxation in India. If taxes paid abroad, say at the rate of 40% is more than the taxes paid in India, then the remaining amount cannot be carried forward in India, which leads to an unfavourable situation,? said an industry executive handling taxes.

Shome?s recommendations are also likely to cover tax concerns raised by the infrastructure sector, gems and jewellery sector, smaller industries like foundries as well as other manufacturing businesses.

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First published on: 01-10-2013 at 20:50 IST
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