The run-up to the budget has started gathering momentum. The recently released economic growth indicators are showing positive signs. The finance minister has a task cut out to prioritise goals and accordingly plan and streamline the tasks keeping in view economic growth, comprehensive reforms, managing fiscal deficit and keeping its exchequer intact.
Tax reforms are on the agenda for the upcoming budget. Industry players, particularly India Inc. and foreign investor community are looking forward to simplified, fair and predictable tax regime with no place for retrospective taxation on any aspect.
On the other hand, the government has made its stand clear and tough on issues of tax evasion and black money. As a campaign against this evil, vigil is likely to be stepped up to address this menace.
In this article, we have summarized the key direct tax expectations ahead of Budget 2016.
Roadmap for corporate tax rate cut The budget is likely to lay down a clear roadmap towards reduction in tax rates with simultaneous phasing out of deductions/exemptions. To give boost to Make in India, research and development, infrastructure sectors, necessary concessions/incentives ought to be continued though it is at crossroads with broader agenda. Appropriate provisions for grandfathering of already committed investments in businesses eligible for deductions/exemptions are expected.
Further, with phasing out of deductions/exemptions, MAT is likely to be scrapped as difference between taxable income and book profits will narrow down.
PoEM deferral Place of Effective Management (PoEM), the new residency criteria for foreign companies introduced in last Finance Act, may be deferred as final guidelines for deter-mination of PoEM are not yet released. Further, as noted by the Income Tax Simplification Committee, the implementation of Income Computation and Disclosure Standards (ICDS), specific set of standards for tax computation, is likely to be postponed as taxpayers are already grappling with other major regulatory changes of Companies Act, 2013, proposed Goods and Service Tax, etc.
Implementation of BEPS Action Plan A significant develop-ment in international tax framework, the action plan of OCED Project on Base Erosion and Profit Shifting (BEPS) is likely to set the trend in upcoming budget. The Indian Government has always supported levy of tax vis-a-vis economic activity. There are enough indications that Indian multinationals would be subjected to exhaustive documentation norms on country by country reporting, master and local file, as a legislative base to BEPS recommendations.
Tax incentives to start-ups: In line with the high profile Start-Up Action Plan already announced, tax exemption on profits, capital gains exemption for investment in designated fund are likely to be proposed for legislation in the budget.
Retrospective taxation Facing intense pressure from international players, the government is likely to have a relook at the famous and controversial ‘Vodafone amendments’ of 2012. Though the government has hinted at resolution of tax issues of Vodafone, Cairn, necessary changes to iron out retrospective amendments in tax law will hold significance in the backdrop of ‘tax terrorism’ tag.
Safe harbours The necessary correction in existing safe harbour rates to align them with real global expectations is anticipated to achieve objective of reducing transfer pricing disputes.
At a time when the government is trying hard to sell the ‘India brand image,’ appropriate support from tax policies is expected on February 29 for an effective and meaningful development. The mood is upbeat with lot of hopes as we keenly await the roll out of budget.
The author is Partner, Direct Tax, BDO India
