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Indian Firms Discuss Tax Reform Direction

by Mary Swire,, Hong Kong

05 October 2015

India should aim for a 20 percent corporate tax rate, strengthen dispute resolution mechanisms, and issue more guidance on the proposed goods and services tax (GST), the Confederation of Indian Industry (CII) has said.

At a meeting with the Revenue Department on September 29, 2015, representatives from the CII noted that the Finance Minister has committed to lowering the corporate tax rate, alongside plans to introduce the GST.

They noted that the current corporate tax rate is around 34 percent. The proposed corporate tax rate, as stated by the Finance Minister in the Budget, is 25 percent, which will effectively mean an effective rate of around 29 percent (inclusive of surcharge and education cess).

CII stated that: "Given that – for most sectors – the effective rate is around 22 percent, if the effective tax rate after withdrawal of exemptions [ends] up being in the range of 29 percent, it will negatively impact industry."

Chandrajit Banerjee, the Director General of the CII, added that, "with exemptions being proposed to be done away with, this would also obviate the need [for a] minimum alternate tax... eventually, there should be a very simple Income Tax Act, which would be the biggest reform that can be brought about by the Government."

Moving on to discuss dispute resolution, Banerjee praised the significant progress made by the Government in this area. However, he recommended the Government should expand upon the experts responsible for approving advance pricing agreements. The CII further recommended a mandatory time limit for passing an Authority for Advance Rulings (AAR) order, which could be 180 days from the end of the month in which the application is filed.

On the proposed GST, the CII said: "If constructed appropriately, GST [will make] the tax administration transparent and [will be] revenue productive. Presuming that GST will occur sometime in 2016, industry feels that there [is a] lack of clarity regarding the intricacies in its proposed structure, transitional arrangements, administration and procedures, and framework to contain inflationary ramifications. In other countries, consultation on the actual proposals would have taken place in an open manner during this phase and there is no reason why this cannot be done in India."

Last, it warned the Government to note accept calls for an additional one percent origin-based tax, which would be levied in addition to the GST. The CII recommended that if the additional one percent [tax] has to be levied, its application should be limited to inter-state sale of goods only for a period of two years." It added that "every effort should be made to include petroleum products, alcohol, tobacco, [and] real property in GST to have a comprehensive base of all goods and services; and electricity duty levied by states and entertainment tax levied by local bodies should be subsumed under GST... and [the] same applies for Octroi that is still levied in cities like Mumbai."

TAGS: Finance | tax | investment | value added tax (VAT) | sales tax | India | gambling tax | goods and services tax (GST) | luxury tax | excise duty | agreements | gambling | manufacturing | inflation | services | Tax

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