<div>The newly elected government would be presenting the Finance budget on July 10. While India Inc expects a budget to be growth oriented and one which is able to boost India’s image as attractive investment destination, striking a balance between fiscal deficit and investment friendly reforms may not be a cakewalk for the Government. <br /><br />From an investor perspective, the key issue to address in this budget is to resurrect the Investors’ perception about India as an investment destination. The approach of tax authorities and the retrospective amendments in the tax laws over past couple of years have dampened the foreign investor’s confidence. Making these amendments prospective would help in restoring the investor confidence.<br /><br />Some of the other wish list items on the tax front which could be considered in this budget are discussed below:<br /><br />The rise in domestic withholding tax rates on payment of fees for technical services and royalties to non-residents from 10 per cent to 25 per cent last year has hit the Indian industry hard and is detrimental to the economy as India needs to import world class technology and tax treaties do not come to the rescue in many cases. The Government will do well if the rate is restored back to 10 per cent. <br /><br /><img width="200" vspace="3" hspace="3" height="300" align="right" src="/image/image_gallery?uuid=bb2a9f6a-b795-402f-9aff-84795bc7f67c&groupId=36166&t=1404739144269" alt="" />There is a lot of thrust on the development of infrastructure sector. Substantial investments are required to be made in this sector with a long gestation period. Per the legal requirements most infrastructure activity is carried on in a Special Purpose Vehicle (SPV) floated specifically for that purpose. The SPV incurs losses in the gestation period whereas the Parent entity would typically earn business profits and pay tax thereon. Introduction of tax consolidation in these cases will lower the burden of taxes on these entities which are contributing to a national goal of infrastructure development by allowing offset of losses incurred by the infrastructure vehicles against the profits earned by the businesses.<br /><br />On the outbound investment front, a reduced rate of 15% was prescribed for taxing foreign dividends received by an Indian company, where it holds atleast 26% of the equity share capital. This reduced tax rate was to incentivize Indian companies to repatriate the income earned overseas back to India and was available till end of the financial year 2013-14. In line with international practice, providing exemption on dividends received from overseas entities or providing credit for the underlying taxes paid by the overseas operating entity may be considered. Alternatively, the concessional tax rate of 15% should be extended. <br /><br />The new corporate law permits outbound merger of an Indian entity with a foreign entity. This provision is yet to be notified. However, the tax laws are still not aligned to determine the taxability of such cross border mergers. Appropriate provisions could be enacted to remove ambiguities.<br />The jury is still out on the need for enacting the proposed Direct Taxes Code (DTC). However, it would be helpful to clear the uncertainty surrounding its enactment over the last few years. <br /><br />Finally, all good polices are ineffective without good implementation. The Tax Policy Reforms Commission (‘TARC’) under the Chairmanship of Dr. Parthasarathi Shome has recently submitted its First Report (‘Report’). According to the Report, taxpayer services must comprise the first focus of a tax administration and prominence be given to “customer focus” to improve the experience of taxpayers with the tax department. The Report makes several key recommendations in the areas of existing organisational structure, existing business processes, existing mechanism for dispute resolution and taxpayer services and taxpayer education which highlight the underlying need to fundamentally reform the tax administration. <br /><br />In conclusion, the intention of this Government could be judged not by the concessions and sops it doles out to the industry and foreign investors but by its ability to boost taxpayer confidence and the level of tax administrative reforms to improve the taxpayer’s experience. <br /><br /><br /><strong>The authors are Jatin P. Kanabar, Director and Pushkar A. Khire, Senior Manager, Deloitte Haskins & Sells LLP. </strong></div>
