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Dr Suresh Surana, Founder, RSM Astute Consulting Group, in response to queries raised by Raja Iyer, Research Analyst at FirstInfocentre, opined that the government must include petroleum products in the proposed goods and services tax (GST) regime as failing to do so would lead to cascading effect of tax on the economy.
"…if it is not included now, and then in future if the centre and the state reaches a consensus then it would require another constitutional amendment to include the petroleum products. As such, petroleum products should be included in the GST Constitution amendment bill".
Following is the excerpts of his response..
The government deferred the introduction of GAAR by three years. Do you feel now all the uncertainties related to foreign institutional investor (FII) investment in the country are cleared? If not, what is your suggestion to the government?
The Finance Bill 2013 proposes to defer the GAAR provisions by 2 years and not by 3 years as recommended by the Shome Committee. No doubt, it must have provided some relief to the FII. However, the uncertainties continues as the proposed GAAR provision has shifted the onus back on the taxpayer to prove that arrangement has not been entered into for the main purpose of obtaining a tax benefit. Further, there is no grandfathering provision in the proposed GAAR.
The government should have accepted the suggestions of the Shome Committee in this respect and also the other recommendations that where a FII chooses not to take any benefit under tax treaty and is subject to tax as per domestic law provisions, then, the provisions of GAAR should not apply to such FII.
Infrastructure companies demanded removal of MAT in the union budget. Do you think, the government should have abolished it?
Abolition of MAT during the tax holiday period for SEZ or infrastructure companies could have provided the much needed incentive to the Industry. Alternatively, the rate of MAT should have been reduced for such companies.
According to some industry watchers, the budget has not done enough to bring about an efficient dispute resolution mechanism. It is argued that the discretionary approach of revenue authority in taxing FII investment is dampening sentiment. Can we have your comments on that?
The Finance Minister said in the budget speech that investment is an act of faith and measures will be taken to remove any apprehension or distrust in the minds of investors including fears about undue regulatory burden or application of tax laws. But then, budget proposed that submission of tax residency certificate (TRC) is a necessary but not a sufficient condition for claiming benefits of a tax treaty. This has created uncertainty in the mind of foreign investors who were expecting certain clarification on last year’s retrospective amendments on indirect transfer and the definition of Royalty. Further, the dispute resolution mechanism was not so effective considering the tax payers’ perspective.
The government should change its attitude to hamper India’s reputation as an investment destination.
Do you think it is legitimate on the part of the revenue authority to claim tax on sale of shares by Shell to its parent firm?
Considering the wide scope of current transfer pricing provisions, the share transaction between two associated enterprises can be scrutinized by the revenue authority to examine the violation of transfer pricing regulations and the authorities can claim tax on the same.
What are the deficiencies in the transfer pricing policy in the country and how can they be addressed?
The existing transfer pricing provisions does not provide enough clarity on many issues resulting in huge tax adjustments and litigations. Last year, the provision of the TP was made applicable to certain domestic transactions without giving any clarification whatsoever.
These provisions need to be codified better and in a fair manner to remove the discretionary power of the transfer pricing officer as far as possible. Rules on Safe Harbour should be issued at the earliest. The provisions of Advance pricing agreement (APA) should also be made applicable to domestic transfer pricing
Do you think it is advisable to have a variable rate structure for GST with a floor rate and a permissible band (in order to give states the flexibility to fix rates)?
In my view, it would have been desirable to have uniform tax rate across the country Otherwise, GST would lose charm of being simplified tax regime. Multiple rates will complicate input tax credit scheme, and it might also encourage cross-state shopping (with a state with lower rate).
Do you think there is a need to include petroleum products in the GST constitution amendment bill?
GST is expected to introduce seamless value added taxation across all the goods and services and it aims at elimination of existing distortion and cascading. Therefore, if the petroleum products are excluded from GST then it would lead to cascading effect of tax on the economy.
Further, if it is not included now, and then in future if the centre and the state reaches a consensus then it would require another constitutional amendment to include the petroleum products. As such, petroleum products should be included in the GST Constitution amendment bill.
The union budget proposed the setting up of a Tax Administration Reforms Commission (TARC). What according should be the terms of reference for this commission?
The proposal to set up a "Tax Administration Reforms Commission" is a significant shift in approach to tax policy and would go a long way towards reviving India’s image among the tax payers. It would be better if the scope of commission covers issues on which divergent views are prevailing to bring in uniformity in the approach and endeavor to reduce the litigations proactively.
The union budget classified foreign investment of upto 10 percent of stake in a company as FII and above 10 percent as FDI (in accordance with the practice in OECDs). Can we have your comments on the move?
Simplifying the definition of FII and foreign direct investment (FDI) based on international practice is a positive move. Further clarity is expected in the upcoming FDI policy expected to be released by 1 April 2013.