5 Tax Proposals Budget 2012 should usher in


With the global economic recovery still on a knife's edge, some of the major European countries battling debt default, coupled with multiple domestic challenges - balancing growth and inflation, reducing the shooting fiscal deficit to acceptable levels and above all, generating adequate tax revenues in this tough environment to fund the ever increasing subsidy bill. Union Budget 2012 is truly going to be a tightrope walk for Finance Minister Pranab Mukherjee. So what are the key tax proposals that the FM will introduce in the Budget? Let us hear what some of the top tax professionals expect from the Budget..

  • Increase incentives to individuals/businesses when directed towards fresh investments in infrastructure/new projects or which enable new employment generation.  This can have a multiplier effect of increase tax collections (indirect) from production/use of capital goods or consumer goods.
  • Overhaul the Tax Assessment/Appellate provisions for better transperancy, fairness and increasing faith of tax payers.  This is certainly not a good year for introducing GAAR especially since businesses are undergoing severe pain and constraints due to inflation/high interest rates, etc.  If necessary to introduce, there should be substantial safeguards/guidelines to avoid litigation.
  • Need to increase tax base as current tax payers are to some extent already stretched; various reports seem to suggest a huge untapped potential of bringing into the tax net new assessees.  This can also achieve revenue expansion objectives.
  • Effectiveness and independence of DRP
  • Promoting skill sets of salaried class is becoming essential, hence need to provide a sizable deduction for higher education will help qualitative improvement of India's skill set.
  • Uday_Ved

    Considering that DTC is now postponed and the fact that Standing Committee has made its recommendations on the proposed DTC, it may appear that there may not be big bang changes in the upcoming Finance Bill 2012 on direct taxation.

    I would expect following changes in Budget proposals.

  • Increasing tax exemption limit for individuals from Rs.1.8 lac to Rs.2 lac (Standing committee has recommended Rs.3 lac) and possible sur-charge of say 7.5% on income above Rs.10 lac. Also there should be no change in basis rate of tax for corporate ie keep it at 30% and MAT to be kept at 20%
  • Introduction of Advance Pricing Mechanism for transfer pricing
  • No introduction of General Anti Avoidance Regulations till DTC is introduced in detail. Alternatively, if GAAR is introduced, then due safe guards should be built in to ‘grand-father’ existing structures and respect Tax treaty benefits. Also it should be possible to avail an advance ruling to determine whether the transaction is subject to GAAR or not.
  • Profit linked incentives may be continued till DTC is in place, specially for infrastructure projects.
  • Various tax administration measures may be simplified.
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  • Proposals to raise Revenues by legislating GAAR, CFC, POEM   are most likely to feature and hence, tax payers would expect that adequate safeguards are built in the legislation to ensure that they are not subjected to onerous requirements or become victims of drafting errors or for that matter a tax collection target for the administration. It is equally important that in general anti avoidance provisions are invoked by the administration selectively and administered judiciously. It would otherwise become a haven of Court disputes and take away the underlying objective to move from a judicial doctrine to legislation doctrine. Tax payers don't fear the legislation, but, its administration. Plan panel recommendation to shift the onus on the administration (from the assesse ) is a sensible move and deserves consideration.
  • APA legislation would be a welcome step and for effectiveness, it should be bilateral. A priority should be accorded to few largest investors (inbound & outbound ) to speed up the pricing agreements. The benefits to Tax payers and government would accrue in medium to long term and reduce litigation in the area of Transfer Pricing
  • Widening the powers of DRP to enable them to adjudicate on principles of law, arbitrate and conciliate on...
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  • It is high time that the obnoxious surcharges which have far out lived their original purpose should be finally removed and the maximum marginal tax rate on individuals and applicable tax rate on companies should be restricted to 30%.  This one single measure will give a hugely positive signal to the economy and positively impact investment decisions of businesses in India.
  • A bold measure to bring back any accumulated cash surpluses with subsidiaries and holding companies outside of India of Indian multinationals such as a concessional rate of 5% tax on dividends brought into the country (as against the current rate of 15% applicable till March 31, 2012) linked to capital investment and employment generation in India.  A similar measure was introduced in US under the JOBS Act to kick start investments in the local economy a dire need of the hour in India today.
  • Assuming that there will be no respite on social expenditure allocations, Government will need to increase excise duty and service tax rates say by 2% across the board to raise additional revenues.  This should be done only in conjunction with an effective reduction in personal tax rates by removing surcharges as mentioned above.
  • The Dispute Resolution Panel should...
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    Given the situation we are in, major big bang incentives are not practical to even wish for - at the same time, not taking cognizance of medium term and long term needs, both on the policy front and on the operational front, is not desirable in this context, I would think it should be the following

  • Meaningful infrastructure related incentives, both for infra companies and for incentivizing investments by individuals into infrastructure (ie in bonds of infra companies)
  • Investment boost - say, 5% additional depreciation
  • Providing clarity on long pending issues, such as Mauritius
  • Providing a mechanism for upfront clarity on tax matters eg. bringing in Advance pricing arrangements
  • Providing meaningful dispute resolution mechanisms eg. changing the inherently conflicted architecture of the DRP
  • Also, it's not just important to bring in something, but also important not to bring in certain provisions! Given the state of the economy, and especially post the electoral situation, the business scenario is not encouraging, and bringing in provisions which can create uncertainty should be avoided – in this context, GAAR should not be brought in ( in any case, it's a part of DTC which is pending even one before the standing committee, and has been the subject matter of many...

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