The run up to Budget 2014 has been peppered with a spectrum of ‘wishful’ thinking and realistic wish-lists from industry and the general public alike. The vast majority which voted for the acche din aane wale hain (good days are coming) government wants to see promises implemented—and delivered.
Will the largely optimistic mood translate into progressive tax laws for India? It is time to wait and watch! The key topic of countless discussions and, in some senses, non-debate, revolve around removing uncertainty in tax laws. That is the crux.
There are a few primary ‘asks’ from the professional community—all of which focus on doing away with the uncertainty in tax laws. The first is that the General Anti-Avoidance Rule (GAAR) be deferred. Second, it is hoped that retrospective nature of indirect transfer provisions be made prospective. Currently, there is also reasonable uncertainty on the computation mechanism for determining the cost of acquisition and the period of holding for taxation of indirect transfers. Clarifications in this area would be greatly welcome.
One of the other focus points for the government would be to push a progressive growth agenda—SEZs and infrastructure development will play an important role in this. In order to encourage units in SEZs, it is essential to make them completely tax-free for a certain period of time including exemption from the Minimum Alternate Tax (MAT).
On the infrastructure development front, the scope is tremendous and, unfortunately, overdue. Tax incentives will certainly provide a much-needed impetus to this segment. While there is tax holiday available for this sector, income earned is still subject to MAT. Related to this, the tax holiday for the power sector also needs to be extended for units commissioning in the current financial year. With the advent of the new Companies Act, 2013, some of the provisions require realignment in the tax law.
l Tax treatment for outbound mergers. The tax law needs to provide guidance in cases where there is a merger of an Indian company into a foreign company. This is now permitted as per the Companies Act, 2013.
l Deductibility of expenditure in respect of corporate social responsibility (CSR) in accordance with the Companies Act, 2013, needs to be addressed.
l Tax treatment of a ‘One Person Company’ as introduced by the Companies Act needs clarifications.
l Other procedural amendments pursuant to changes in the corporate law.
l The concessionary tax rate applicable for dividends received by an Indian company from a