Published Editorial

Budget 2014: Finance Minister Arun Jaitley tempered high aspirations for biz-friendly tax outcome

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The Economic Times

By

Sudhir Kapadia
National Tax Leader, EY

The Finance Minister managed to temper the unreasonably high hopes in the run up to his Budget by making it clear that fiscal prudence is the need of the hour so there was no room for major revenue concessions. The FM also surprised many observers by virtually reviving that old tax laboratory warhorse called Direct Tax Code (DTC). But he chose to temporarily ignore some inherent features of the DTC e.g. elimination of a variety of tax exemptions in lieu of lower corporate tax rates.

In fact, the Economic Survey clearly advocates ultimate removal of various exemptions as well as surcharges, but these aspects will have to remain 'aspirational' for now as this Budget retains all the tax rates and further enhances the list of exemptions in specific investment areas.

Within the current framework of the law, however, there are some salutary measures which inspire hope such as a serious attempt to reduce tax disputes and obtain tax certainty. This is sought to be achieved by extending the facility for Advance Rulings to the residents, extending the ambit of Advance Pricing Agreements (APAs) to past four years, clarifications on some litigious areas in Transfer Pricing and strengthening of Settlement Commission mechanism. However, there is a dire need to build capacity of AARs and Settlement Commission to really make them effective for this purpose.
The dampener of course is the continuance of retrospective tax on indirect transfers. Though a high powered Committee is contemplated for new disputes arising from this provision, it still isn't clear what legislative powers will be available to such a Committee when the law itself is not amended and continues to tax such transfers.

There is a welcome clarification on certainty of capital gains tax on Foreign Portfolio Investors (FPIs) but it would have been better if the same certainty is given in respect of investments by foreign private equity and venture capital funds, as the real shift of fund management companies to India from places like Mauritius will happen only then. In the area of indirect taxes much hoped for alignment of input tax credits on goods and services consumed by a unit under CENVAT rules, did neither come out nor a confirmed date for GST implementation.

The reintroduction of Kisan Vikas Patras is interesting, is this some kind of "soft amnesty" to garner unaccounted money for productive investments? All said, this is a budget with some hopes and many aspirations for a better tax outcome for businesses.

(Views expressed are personal)