Setting up of a panel headed by Justice R.V. Easwar to simplify current complexities in direct taxes and to bring about certainty in the tax policy regime is an encouraging step that would help restore investor confidence, say analysts. Given that taxation issues are still perceived as major irritants for attracting investments in the country, “the timing of setting up the panel is also right, as some of its recommendations, especially on contentious issues, could be incorporated in the forthcoming budget in February 2016,” says Vikas Vasal, an expert on direct taxes with KPMG India. Some of the important issues that need to be set right immediately relate to transfer pricing disputes on cost and mark ups, taxability of expenditures incurred on marketing intangibles, adds Vasal.
After having taken many steps in the recent past to resolve tax issues, the perception of Prime Minister Narendra Modi’s government has been improving in the eyes of investors. Resolution of the issues related to applicability of Minimum Alternate Tax (MAT) on Foreign Institutional Investors (FIIs) and on foreign companies is a good example of the government taking cognizance of the live issue. “Setting up of the Easwar panel now signifies that the government is sensitive to business requirements and is addressing the concerns of the investor community on tax issues,” says Vasal. Businesses desire clarity as to the tax implications linked to their business decisions, be it in respect to investment structures or in respect to their day-to-day transactions. Such clarity and predictability would also bring down the litigations associated with taxation.
The panel would also look into the ambiguities in the current taxation code which often leads to multiple interpretations. It would evaluate the entire gamut in detail, invite inputs from different stakeholders before giving its considered view to the government. The panel would also advise the government on measures that would further facilitate the ease of doing business in India. Easwar Panel is likely to submit the first set of recommendations to the government by January 2016.
Meanwhile, the World Bank has appreciated various measures being undertaken by the government which has helped India improve its global ranking by 12 positions on the ease-of-doing-business parameter. The bank specifically says that India’s ranking on “getting electricity connection” and “starting a business” has shown improvement. The process of getting an electricity connection has been shortened by 14 days, with faster clearances and doing away of meaningless inspections. Eliminating minimum capital requirement for starting a new business is another significant step undertaken by the government. “It shows that the government’s efforts in providing an enabling environment for the growth of the industry are yielding desired results,” says FICCI.
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