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Tax=Simplified?

Published on Fri, Jan 22,2016 | 23:44, Updated at Mon, Jan 25 at 17:13Source : CNBC-TV18 |   Watch Video :

It’s been less than 3 months since the Easwar Committee took on the task of simplifying India’s 55 year old direct tax regime. Their first report, if implemented could mean reduced litigation, a lower capital gains tax and could also increase the ease of doing business. We caught up with three leading tax experts to get their insights on the panel’s recommendations.

Dinesh Kanabar
CEO, Dhruva Advisors
The way I see the Easwar committee report, there are several committees which have been formed by the government from time to time to look at simplification of tax laws to provide clarity. Probably this is one committee which has given recommendations which are so practical and so radical and down to earth that if indeed implemented in the forthcoming Budget, this could really change the way the tax office and the assesses are interacting with each other.

Pranav Sayta
Partner, EY India
They’ve really come up with a good list of measures which I think address 3, 4 key areas – one is bringing about a simplicity in the tax regime, the other is addressing the aspect of tax litigation which has been extremely protracted and widespread in the Indian tax regime system. The other is trying to build a sense of accountability, trying to build that trust and confidence and so to say making a case for building a larger tax base, building a trust and confidence amongst tax payers and the tax collectors and finally I would feel that all of this has tried to be done both from a legislative standpoint and from an administrative standpoint.

Ketan Dalal
Partner, PWC India
I think the committee has made a very good recommendation in terms of saying that when IND-AS for example is being introduced, the committee has recognized the fact that too many changes are happening, too many things are besieging corporate India, so for example Companies ACT, GST, IND-AS, ICDS. So they have said IND-AS for example let status quo be maintained and let tax not get into this so I think that’s a very far reaching one. The second is the deferment of what is called ICDS which is Income Computation and Disclosure Standards against which there is a significant amount of opposition because a lot of it is timing differences and can significantly interfere with the way companies account for things at least in terms of tax and I don’t think there is any need for anything like the ICDS – so they have suggested deferment, so these are two substantive, two macro ones in a manner of speaking. On the substantive one they have given or made recommendations on how to deal with capital gains versus business income and essentially they have said that anything which is more than one year old, one year holding should be capital gains.

Menaka Doshi
CNBC-TV18
The company has also made several procedural recommendations to improve the ease of doing business in India by bringing down litigation and reducing the compliance costs on businesses in the country.

Dinesh Kanabar
CEO, Dhruva Advisors
Again something which is an ongoing litigation which the tax payer’s face as to whether the income which has arisen is business income or capital gains. And two recommendations here, that if your income is less than Rs 5 lakh, if you have returned Capital gains it will be accepted without any question.. otherwise even if income is more than Rs 5 lakh but the shares are held for a period of 1 year and are reflected in the book of accounts as a capital asset, that will be accepted and not be challenged at all, again sort of killing off litigation.

Pranav Sayta
Partner, EY India
The report talks of addressing most of the concerns under section 14A which really addresses most of the litigation that arises today under that provision so if we look at the kind of Rule 8D litigation that presently is in vogue, it is phenomenal. And just addressing some of this will significantly bring down litigation which has advantages both for the tax payer as well as the tax administration and the tax collector. So we are told for example that if the Dividend Distribution Tax has already been paid by the company, it is economically as good as shareholder paying the tax and therefore the question of disallowing expenses to the shareholder, for incurring the expenses in connection with the dividends that he earns or the shares that he acquires should not arise and therefore that disallowance should not take place. In most cases if the investment is for holding shares for example and this disallowance is removed, it could result in significantly reduced litigation for both the tax payer and the tax revenue authorities.

Ketan Dalal
Partner, PWC India
This committee has said that the communications to and from the income tax department electronically should be recognized. Now it may not seem on the face of it to be earth shaking but I think it’s a very important procedural suggestion which will significantly enhance ease of doing business or at least reduce the unease of doing business. So that’s number one. Large number of suggestions have been made in relation to TDS both in terms of rates, in terms of enhancement of limit and indeed in terms of compliance burden on corporates or any tax deducter so I mean remember, somebody who is deducting tax in a sense is acting as so to speak, for the government. And to put so much compliance burden is perhaps unfair, so that has been done. Quite a few things have been done on stay of demand, recovery, a lot of these things which make it very difficult to do business and some of the suggestions are very practical and many of these suggestions have been made in terms of point of time of issuing refunds etc. So I think all in all several suggestions on the procedural front to facilitate ease of doing business.

Menaka Doshi
CNBC-TV18
Experts say, the committee might come out with more substantive recommendations in the weeks and months to come, but it is expected also some of these recommendations already made by the Easwar panel will find their way in the Union Budget that’s barely a month away.

Dinesh Kanabar
CEO, Dhruva Advisors
Today a foreign non resident tax payer does not get credit for the dividend underlying distribution taxes paid by the Indian company in the foreign country because the foreign country regards dividends as being exempt from tax. So, a specific provision to clarify that although a DDT is paid by a company it is paid for and on behalf of the recipient, something which is necessary to get credit overseas. So, a number of such provisions which have indeed been recommended and in fact in my interactions with many of the Committee members I believe they are very cognizant of this, they simply wanted to address the low hanging fruits at this point in time and then come out with substantive recommendations later on.

Ketan Dalal
Partner, PWC India
One is if the committee can deal with the architecture of dispute resolution and things around that would be very useful, so for example dispute mitigation by lets say the government issuing position paper, so if the committee could make a recommendation on that and suggest to the government a mechanism to facilitate taking calls, that would be a very very big step. So that’s one. On the substantive side, quite a few things could be done, so for example we don’t have a concept called group taxation. We could look at that because companies in many cases need subsidiaries for regulatory reasons like financial service companies or for commercial reasons like infrastructure companies. So if the concept of group taxation can be introduced, it would lead to simplification.

Dinesh Kanabar
CEO, Dhruva Advisors
This committee is a very broad based committee. It comprises revenue officials, professionals, of retired HC judges, so all the factions have really put in their thoughts together and I’d be really surprised if almost bulk of the recommendations do not get implemented in the Budget. My expectation is this budget the changes will be modeled around other recommendations which have been given by the Committee.

Ketan Dalal
Partner, PWC India
The Easwar panel has actually given the draft of the provisions which will significantly facilitate incorporating them in the budget. Virtually every provision that they have recommended or every suggestion that they have made, is backed up by a draft of a legislation which is very interesting and very welcome. So I think a lot of these suggestions even though the time is short, the way the suggestions have been laid out or the way the recommendations have been laid out and the fact as I said that the draft is available, I’m hoping that many of these suggestions will actually find a place in the budget.
 
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