| FM eases advance pricing regime | |||
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The APA scheme, introduced in 2012, provides certainty to taxpayers by specifying in advance the arm's length price in cross- border transactions between related parties for next five years. The rollback would mean an APA for future transactions may also be applied to international transactions undertaken in the previous four years in specified circumstances. To align transfer pricing regulations in India with the best available practices, the finance minister has also proposed to introduce the " range concept" to determine arm's length price. Current rules allow only one year's data to be used for comparable analysis; the Budget proposed to amend the regulations to allow the use of multiple year data. One of the major steps in this Budget has been extending the advance ruling regime to domestic companies above a certain threshold. Earlier, the facility was available only for foreign companies. This is expected to address the proliferation of litigation in domestic taxes. Currently, tax demands of more than ₹ 4 lakh crore are under dispute and litigation before various courts and appellate authorities. Jaitley also proposed to strengthen the Authority for Advance Rulings by constituting additional benches. The scope of the Income Tax Settlement Commission will also be enlarged. The finance ministry also proposed to set up a high- level committee to interact with trade and industry on a regular basis to establish clarity in tax laws. The Budget also gave relief to the manufacturing sector by specifying that even where the product is being sold at a loss ( below manufacturing cost plus profit) the excise duty would be applicable on such price ( at which goods are sold) and not on a notional price as held in the Fiat case. "This is good news for the industry, particularly the auto sector, which was facing huge litigation after the Fiat decision a couple of years ago. However, this solves the problem prospectively. For the past period, industry will have to continue with the litigation," said Partik Jain, partner, KPMG. Tax proposals on the indirect taxes side are estimated to yield ₹ 7,525 crore during 201415, while direct tax proposals, which raised the income tax exemption limit, will cause a net loss of ₹ 22,200 crore. The finance minister retained the tax collection targets at the same level of the interim Budget presented in February. To boost domestic manufacture and to address the issue of inverted duties, the Budget reduced basic customs duty on certain items. To broaden the tax base in service tax, the Negative List for taxation of services is to be pruned. The free baggage allowance under the baggage rules was last revised in 2012. As ameasure of passenger facilitation, the Budget increased the free baggage allowance from ₹ 35,000 to ₹ 45,000. Meanwhile, Jaitley also sought to push reform by accelerating the introduction of the long- delayed Goods and Services Tax ( GST) to streamline local taxes for businesses and ensure higher revenue collection. " I do hope we are able to find a solution in the course of this year and approve the legislative scheme which enables the introduction of GST," Jaitley said. venue Secretary Shaktikanta Das said once issues related to entry tax and petroleum were sorted out the government would provide central sales tax compensation as the finance minister has already committed to states. He added it is not possible to roll out central GST first, as suggested by the Economic Survey. On the Direct Tax Code ( DTC), Jaitley said the government would consider the comments received from stakeholders and review the DTC in its current shape and take a view in the whole matter. He dashed foreign investors' hopes by declining to roll back the 2012 retrospective amendments to tax laws, but sent strong signals that his government was committed to streamlining the tax administration. Domestic firms get access to advance price ruling; scope of Settlement Commission to be enlarged to resolve tax disputes HOW REVENUES STACK UP (₹ cr) Direct taxes Indirect taxes Figures in bracket show % increase Source: Budget documents | |||
| New panel will review all transfer pricing cases | |||
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On retrospective amendments to the Income- Tax Act: The government will not ordinarily undertake retrospective tax legislation. Though this is a sovereign right of the government, it will keep in mind the overall impact on the economy and investor sentiment. Cases pending in various courts will continue and reach their logical conclusion. There is no intention to interfere with those. A high- level committee has been announced, and the Central Board of Direct Taxes will notify this within a week or so. The committee will review all fresh cases relating to transfer pricing, particularly indirect transfers, before any action is taken on such cases. Also, retrospective changes are brought to tax laws in a very routine matter, for technical corrections. Even in this Finance Bill, there are several retrospective changes. Ordinarily, however, there will be no retrospective changes that create fresh liabilities. On FDI ( foreign direct investment) in e- commerce: This is a clarification. When we talk of e- commerce, it relates to trading companies. Nothing is said about that in the Budget speech. But if there are companies that are investing and manufacturing in India, these can sell the goods manufactured by them through e- commerce. There was a question; that question has been answered. We allow 100 per cent FDI in manufacturing, barring a few exceptions. On whether the FDI cap in insurance has riders on voting rights: We have only said the composite cap will be 49 per cent, with full Indian management control. There is nothing more to be added. Composite means that it could be any permutation— all 49 per cent could be FDI; or 49 per cent could be foreign institutional investment, with the approval of shareholders. On changes in dividend distribution tax ( DDT): The DDT rate has not been changed; it is 15 per cent. For the past few years, companies have been paying taxes net of dividend tax. For example if the dividend amount is ₹ 100, companies will deduct DDT and on the remaining 85, they will calculate the incidence of DDT. This has been corrected. The shareholder will continue to get the same amount of dividend. On the Expenditure Management Commission: An interim report will be given in five- six months. This will address the issue of subsidies, too. You don't have quick answers to these issues. We will find answers— there might be systemic changes, through which you might handle subsidies better. There are so many ways to do it. We don't have the answers right now. On treating foreign portfolio investors' income from transaction in securities as capital gains: The focus of the budget is tax clarity. There was a lot of confusion on whether this particular income was business income or capital gains. This deterred lots of fund managers from coming to in India. This lack of clarity also created confusion among portfolio investors, while bringing money into India. The whole focus was to remove ambiguity and bring in clarity. Henceforth, it will be treated as capital gains. We believe fund managers will now come back to India. On the road map to fiscal consolidation: There are two things: We have created a fiscal space, and have given up ₹ 22,200 crore on the direct tax side. We have gained ₹ 7,525 crore on the indirect tax side. If you look at the direct tax- GDP (gross domestic product) ratio, we have projected it to increase to 10.6 per cent this financial year from 10.1 per cent in the previous year; 10.1 per cent was on the GDP growth of 4.7 per cent. This year, our projections for economic growth are 5.4- 5.9 per cent. So, a 10.6 per cent taxGDP ratio is not an ambitious target. On the indirect taxGDP ratio front, too, we have not projected much growth. But if you look at the non- tax side, we have increased the projection by ₹ 31,752 crore. Also, we have reoriented many schemes announced in the interim Budget and created space of ₹ 10,000 crore. So, the total fiscal space is ₹ 56,400 crore. On this, we have shown additional expenditure. On consolidation of public sector banks: We are getting proposals from various stakeholders. These are being examined. We have to see how many we accommodate this financial year and how many in the next. At a post- Budget press conference, Finance Secretary ARVIND MAYARAM, Revenue Secretary SHAKTIKANTA DAS, Expenditure Secretary RATAN WATAL, Disinvestment Secretary RAVI MATHUR and Financial Services Secretary GS SANDHU speak on a variety of issues: Edited excerpts: Finance Secretary Arvind Mayaram at a press conference on Union Budget 2014- 15, in New Delhi on Thursday. PHOTO: PTI
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