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Budget 2013: Experts React!

Published on Thu, Feb 28,2013 | 15:52, Updated at Thu, Feb 28 at 15:52Source : 

CNBC-TV18’s Payaswini Upadhyay gets first reactions from experts on Budget 2013-14.

N.C. Hegde, Partner Deloitte Haskins and Sells
“Foreign investors have a reason to be disappointed with the budget. Apart from paying lip service to the need to provide a stable regime to such investors, nothing much has been offered to give them comfort on a non adversarial tax regime.
Firstly, the clarity sought on various aspects of indirect transfers has not been provided leaving many M&A deal makers involving Indian assets in the lurch as one would need to await further policy or legislative announcements.
Secondly there is no respite of any kind in relation to the transfer pricing regime which is soon ballooning to be one of the greatest threats to foreigners wanting to do business with India. The announcement of the implementation of the safe harbor regime after considering the Rangachary report is too little and too few.
And the final nail in the coffin is the increase in the domestic tax rates on non residents on royalties and fees for technical services from 10 per cent to 25 per cent. This will impact technology transfers and service providers from the US and the UK as their tax bill will double from 10 to 15 per cent.
In all, a lot more needs to be done to attract foreign investment in the country and the measures in the Budget would clearly leave foreign investors disappointed.”

Aliff Fazelbhoy, Senior Partner, ALMT Legal
• Recognising the need for FDI is a positive sign and hope that there will not be stability in policies
• Introduction of women's bank is interesting and could provide an impetus to small women entrepreneurs
• The limits on the surcharge to income over 1 crore and for one year only will soften the blow
• Non introduction of inheritance tax is welcome
• Increasing withholding tax rate on royalties and fees for technical services (though subject to DTAA rates) from 10 to 25% is too steep. Should have been 15 or 20% at best.
• Benefit of no DDT on foreign dividends being redistributed is welcome.
• No clarification on retrospective amendments is disappointing

Krupa Venkatesh, Senior Director, Deloitte India
“Maintaining the indirect tax rates, in general, at the same levels is welcome.  Recent announcements by the Government indicated that the decks had been cleared for an early GST introduction.  Despite this, not announcing a concrete road map for the introduction of this indirect tax reform, which is so important for the industry, and an indicative time line for the same, is disheartening.”

R Muralidharan, Executive Director- Indirect Tax, PwC India
“There was a expectation that the Finance Minister in his Budget Speech would lay down a clear road map on the implementation of the long awaited Goods and services tax (GST) in India. Though the FM by setting apart specific amount for CST compensation in the budget  has shown his seriousness ,the fact that not even the  target date for implementation of GST  has been announced, indicates that GST is still far way"

Sachin Menon, Head-Indirect Tax, KPMG India
“The Budget presented by the Finance Minister, though not entirely on expected lines, is somewhere near the expectations of Indian business fraternity.  In these testing times the industry would have welcomed a reduction in the tax rates. However, considering the fiscal deficit, industry was hoping for no change in the generic rates of Excise, Customs and Service Tax which the budget appears to have lived up to.

Changes in rates of Customs Duties seek to strike a balance by increasing the customs duties on high end vehicles, motorcycles, yachts, mobiles etc. while decreasing the customs duties on India’s basic requirements such as coal, machineries for textile and leather industry, testing equipment for maintenance repair & overhaul of aircrafts etc.

Changes in rates of excise duties seeks to provide economic thrust in the right direction by re-instating the exemption on readymade garments, bringing ayurvedic and other medicaments under MRP based assessment with abatement while on the other hand hiking the excise duties on SUVs and cigarettes.

The industry was looking forward to resolutions / clarifications on anomalies arising in Service Tax on account of Negative List which the budget seems to have ignored.

Announcement of progress in drafting of GST legislation and constitutional amendments coupled with allocation of fund for State compensation towards CST phase out is a welcome gesture indicating Government’s strong determination in tax reforms. The announcement brings to life the hope of India to resolve the disagreements on GST and see light of GST in the near future.”

M. Lakshminarayanan, Partner, Deloitte Haskins and Sells
“The FM, P. Chidambaram,  was ready this year with a Budget geared to woo the international investing community, especially after the negative response to the proposed General Anti Avoidance Rules (GAAR) and retrospective amendments in the Finance Bill 2012 (by a different FM). The FM emphasized that investment was an “act of faith” and that doing business in India should be perceived “easy, friendly and mutually beneficial.” With this intent clearly outlined, he announced that a modified GAAR based on major recommendations laid down by the Shome Committee to be implemented in 1 April 2016. However, the Budget 2013 is silent on the fate of the retrospective amendments carried out last year. The FM also announced the setting up of a Tax Administration Reform Committee. He stated that there would be a focus on raising the tax-GDP ratio to 11.9 percent from the current level of 9.9%.  Indeed, the Budget proposals have been developed with the right intent and in the right direction. What is needed now is the implementation as also ensuring that tax officers are trained to be more investor friendly.”

Daksha Baxi, Executive Director, Khaitan & Co.

• Clarity sought to be brought  on the distinction between FDI and FII based on the percentage of shareholding in the invested co may create some controversy due to the fact that  there is a special taxation regime for FIIs and for that, the FIIs have to be so registered with SEBI
• Increase in WHT on royalty paid to parent companies to 25% from the current 10% may have a significant impact in the manner in which the transactions between parent and Indian subsidiaries are structured.
• Increase in Surcharge across companies is a concern though said to be only for one year
• Extending tax holiday for power sector for one year is as expected
• Concessional tax rate of 15% on div from foreign subsidiaries by one more year was also expected
• Final tax of 20% on buy back of shares out of profits by unlisted companies will increase tax incidence on the income repatriation of FDI. However, if this tax is in the form of dividend withholding tax, the applicable treaty rate for dividend withholding may reduce this incidence.
• Welcome clarity on taxation of securitisation vehicles. Should boost this sector.
• Not announced introduction of Estate Duty, welcome. Though one year surcharge on super rich has been introduced and should have been avoided.
• Introduction of investment allowance of 15% should help spur manufacturing related investments.

Sunil Shah, Partner, Deloitte Haskins & Sells
“The Finance Minister has rightly stressed the basic principles of taxation such as clarity, stability, non-adversarial, fair dispute resolution and independent judiciary.

There were expectations that the rates of corporate tax would be reduced or the surcharge abolished to make the tax regime competitive but instead the surcharge will be increased for domestic and foreign companies, although only for one year. A welcome move is to continue the reduced tax rate of 15% on dividends from overseas subsidiaries and to allow exemption from dividend distribution tax on further distribution of dividends by the Indian parent company from out of the overseas dividends received. This will encourage repatriation of profits to India. On the other hand, the levy of a withholding tax on buyback by unlisted companies will reduce the attractiveness of investment into India.

The proposal to review and defer the GAAR will help in improving investor sentiment. The GAAR Committee has made useful recommendations in its report which will now be considered by the government.

The introduction of investment allowance for high value investments is a welcome proposal which would stimulate growth and capital investment.

The proposed increase of the tax rate on royalties and fees for technical services from 10% to 25% is steep and goes back to pre-1997 days when the tax was 30%. Although treaty relief would be available, not all treaties grant a rate of 10%. This will increase the costs of technology imports.

The switch from Profit Sharing to Revenue Sharing for oil & gas projects will simplify the sharing mechanism and enhance efficiency in the sector.

The imposition of a transaction tax on commodity futures could have a dampening effect on the commodities market.”


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