Bar & Bench spoke to tax partners Aseem Chawla (Pictured Left) of Amarchand Mangaldas and Balbir Singh (Pictured Right) of DSK Legal on the Budget Speech of the Finance Minister. Here is an excerpt of our conversation..Bar & Bench spoke to tax partners Aseem Chawla of Amarchand Mangaldas and Balbir Singh of DSK Legal on the Budget Speech of the Finance Minister, Pranab Mukherjee. Here is an excerpt of our conversation..Budget 2011 – Your views.Aseem Chawla (Pictured Left): The Budget to me is a good precursor and a preface to all legislative reforms that are needed to an economy, which has seen two decades of liberalization and that, wants to move ahead..The Finance Minister’s (FM) speech was although long with 197 paras, the FM should have thrown some more light on the issue of IFRS (International Financial Reporting Standards) while he was on the Companies Amendment Bill. By and large, the fact that he has not rolled back the excise duty, which according to many including me thought that he would roll back, that was very encouraging, although the FM mentioned that he was tempted to roll back the excise duties..Therefore, it’s a balanced budget and has no radical reforms or suggestions..Balbir Singh (Pictured Right): I really don’t think the FM has done too much. He has not altered domestic tax structure; neither have there been any major announcements. However, there have been some important changes with the clarity on implementation of the DTC in April 2012..The Government should have clarified issues relating to multiple jurisdiction assessments. What are notified countries and what are non-notified countries, a lot of discretion is there and there are enormous powers to the assessing officer, and that according to me should have been abolished..Tax Havens & Black Money .Balbir Singh: In order to oversee FDI inflows and track black money, the FM has created powers under the Income Tax Act to monitor these soft jurisdictions, and where a list of notified jurisdictions would be announced. The tax authorities would have a lot of powers to conduct investigations over the investments from these jurisdictions and even independent transactions would be open to scrutiny. Therefore tax authorities would have extensive information on the value of investment flowing into the country, valuations of these investments etc..Aseem Chawla: There is a proposal for the introduction of Section 94 A, which provides for over-riding presumptive powers to the assessing officer towards the treatment of certain transaction concluded in jurisdictions notified by the Income Tax Department. What would be interesting to note is, which are the jurisdictions (countries) that would be notified for the purpose of Section 94 A..Lawyers – Service tax element.Balbir Singh: The earlier issue was whether litigation lawyers come under the ambit of service tax. Earlier, only law firms were covered under the ambit of service tax. As per the budget, even lawyers who are not a part of a law firm structure will have to pay service tax on all services rendered to corporates even on matters including litigation and arbitration. Individual lawyers who are providing litigation services to other individuals, who are not corporates are exempted from the service tax ambit..Aseem Chawla: The scope of service tax has been widened ever since it was introduced in 1994 from a couple of services to about more than 100 plus services. The FM wanted to broad base the levy of service tax. There is a new definition for “legal consultancy service”, which has been proposed. Clearly this will widen the scope of the coverage of service tax that may be levied on lawyers..Foreign Subsidiary Dividend Tax – A welcome move.Balbir Singh: Currently any acquisition made by an Indian company abroad is made by their subsidiary companies that are situated outside India. These subsidiaries generate profit abroad and distribute dividend. As of now, the dividend earned by the Indian parent or the Indian shareholder was taxed at a full rate of 33 percent. Currently the FM has proposed a reduction in this tax to 15 percent, which is a welcome move..Dispute Resolution Panel.Aseem Chawla: The Dispute Resolution Panel (DRP) was conceived to provide speedier and pragmatic form of alternate dispute re-dressal in case of transfer pricing related litigation. Unfortunately, this did not happen as expected by the taxpayer and the Income Tax Department. I thought this Budget should have clarified this issue..Direct Tax Code & Goods and Services Tax .Aseem Chawla: I have been constantly airing this that if the FM (Pranab Mukherjee) cannot implement GST, then there is no political person in the current climate who can ensure economic and political consensus. The FM is the most perfect and understands the compulsions of the political reality. It is not easy to ensure that the state governments agree for the levy of GST..Balbir Singh: I don’t see any problems of implementing DTC as it is in the domain of central government. With the congress led government hopefully being in power till the next budget, the DTC implementation will sail through smoothly. The issue is with the implementation of the GST since several state governments will also have to take an initiative. With elections in some states being announced this year where opposition may have control, it will be a tough call to implement GST and I personally don’t have any hope for it to come this year or the next..STPI exemption being removed.Aseem Chawla: There was a lot of confusion about the SEZs and the push that it required. Since there was a benefit available under STPI, what is required was to push SEZ in its true sense. SEZs were facing a lot of hindrance because of ongoing income tax exemption for STPI. Now I think the Government should get its act together and act coherently to promote SEZs. .Balbir Singh: If we look at what has happened last 3-4 years, all the exemptions for exports have been cut down. The sunset clause was available only for ten years and with DTC coming in next year, I don’t think Government wants to make it any complex. Further, the SEZ’s have also been taken care with a MAT (Minimum Alternate Tax) of 15 percent..Resources:.The Finance Bill, 2011.Budget Speech (Word Format, PDF Format)
Bar & Bench spoke to tax partners Aseem Chawla (Pictured Left) of Amarchand Mangaldas and Balbir Singh (Pictured Right) of DSK Legal on the Budget Speech of the Finance Minister. Here is an excerpt of our conversation..Bar & Bench spoke to tax partners Aseem Chawla of Amarchand Mangaldas and Balbir Singh of DSK Legal on the Budget Speech of the Finance Minister, Pranab Mukherjee. Here is an excerpt of our conversation..Budget 2011 – Your views.Aseem Chawla (Pictured Left): The Budget to me is a good precursor and a preface to all legislative reforms that are needed to an economy, which has seen two decades of liberalization and that, wants to move ahead..The Finance Minister’s (FM) speech was although long with 197 paras, the FM should have thrown some more light on the issue of IFRS (International Financial Reporting Standards) while he was on the Companies Amendment Bill. By and large, the fact that he has not rolled back the excise duty, which according to many including me thought that he would roll back, that was very encouraging, although the FM mentioned that he was tempted to roll back the excise duties..Therefore, it’s a balanced budget and has no radical reforms or suggestions..Balbir Singh (Pictured Right): I really don’t think the FM has done too much. He has not altered domestic tax structure; neither have there been any major announcements. However, there have been some important changes with the clarity on implementation of the DTC in April 2012..The Government should have clarified issues relating to multiple jurisdiction assessments. What are notified countries and what are non-notified countries, a lot of discretion is there and there are enormous powers to the assessing officer, and that according to me should have been abolished..Tax Havens & Black Money .Balbir Singh: In order to oversee FDI inflows and track black money, the FM has created powers under the Income Tax Act to monitor these soft jurisdictions, and where a list of notified jurisdictions would be announced. The tax authorities would have a lot of powers to conduct investigations over the investments from these jurisdictions and even independent transactions would be open to scrutiny. Therefore tax authorities would have extensive information on the value of investment flowing into the country, valuations of these investments etc..Aseem Chawla: There is a proposal for the introduction of Section 94 A, which provides for over-riding presumptive powers to the assessing officer towards the treatment of certain transaction concluded in jurisdictions notified by the Income Tax Department. What would be interesting to note is, which are the jurisdictions (countries) that would be notified for the purpose of Section 94 A..Lawyers – Service tax element.Balbir Singh: The earlier issue was whether litigation lawyers come under the ambit of service tax. Earlier, only law firms were covered under the ambit of service tax. As per the budget, even lawyers who are not a part of a law firm structure will have to pay service tax on all services rendered to corporates even on matters including litigation and arbitration. Individual lawyers who are providing litigation services to other individuals, who are not corporates are exempted from the service tax ambit..Aseem Chawla: The scope of service tax has been widened ever since it was introduced in 1994 from a couple of services to about more than 100 plus services. The FM wanted to broad base the levy of service tax. There is a new definition for “legal consultancy service”, which has been proposed. Clearly this will widen the scope of the coverage of service tax that may be levied on lawyers..Foreign Subsidiary Dividend Tax – A welcome move.Balbir Singh: Currently any acquisition made by an Indian company abroad is made by their subsidiary companies that are situated outside India. These subsidiaries generate profit abroad and distribute dividend. As of now, the dividend earned by the Indian parent or the Indian shareholder was taxed at a full rate of 33 percent. Currently the FM has proposed a reduction in this tax to 15 percent, which is a welcome move..Dispute Resolution Panel.Aseem Chawla: The Dispute Resolution Panel (DRP) was conceived to provide speedier and pragmatic form of alternate dispute re-dressal in case of transfer pricing related litigation. Unfortunately, this did not happen as expected by the taxpayer and the Income Tax Department. I thought this Budget should have clarified this issue..Direct Tax Code & Goods and Services Tax .Aseem Chawla: I have been constantly airing this that if the FM (Pranab Mukherjee) cannot implement GST, then there is no political person in the current climate who can ensure economic and political consensus. The FM is the most perfect and understands the compulsions of the political reality. It is not easy to ensure that the state governments agree for the levy of GST..Balbir Singh: I don’t see any problems of implementing DTC as it is in the domain of central government. With the congress led government hopefully being in power till the next budget, the DTC implementation will sail through smoothly. The issue is with the implementation of the GST since several state governments will also have to take an initiative. With elections in some states being announced this year where opposition may have control, it will be a tough call to implement GST and I personally don’t have any hope for it to come this year or the next..STPI exemption being removed.Aseem Chawla: There was a lot of confusion about the SEZs and the push that it required. Since there was a benefit available under STPI, what is required was to push SEZ in its true sense. SEZs were facing a lot of hindrance because of ongoing income tax exemption for STPI. Now I think the Government should get its act together and act coherently to promote SEZs. .Balbir Singh: If we look at what has happened last 3-4 years, all the exemptions for exports have been cut down. The sunset clause was available only for ten years and with DTC coming in next year, I don’t think Government wants to make it any complex. Further, the SEZ’s have also been taken care with a MAT (Minimum Alternate Tax) of 15 percent..Resources:.The Finance Bill, 2011.Budget Speech (Word Format, PDF Format)