Budget 2016: The burden of expectations on FM Arun Jaitley is huge
and one cannot forget that the higher spending on account of implementation of
one rank one pension scheme (OROP) for armed forces and the 7th Pay Commission
recommendations are likely to make it even more challenging to meet these
expectations. The gains on account of Laffer Curve should be kept in mind while
bringing about the changes: simplification and clarity in tax laws will
undoubtedly improve tax compliance thereby increasing the tax revenue. Whether
FM Arun Jaitley succeeds in living up to all these expectations and implements
measures to spur growth and stability remains to be seen
Budget 2016: Expectation from budget with respect to Minimum
Alternate Tax - Removal or significant reduction in the rate of Minimum
Alternate Tax (MAT) will put significant cash flow in the hands of taxpayers to
make much needed investments. Today, in view of the Dividend Distribution Tax
(DDT), no dividends can be paid without tax of almost 21% by the companies. In
fact, with DDT, the aggregate tax rate on a company, including surcharge and
education cess could be as high as 47% to 51% if no special exemptions are
available. This is far higher than the stated 30% tax rate on companies. If
corporate tax rate is to be reduced to 25% over the next 3 years and the
investment and profit linked exemptions and deductions are to be phased out,
then there is a very good case to phase out the MAT and ultimately scrap it
Budget 2016: Expectation from budget with respect to Dividend
Distribution Tax - Dividend Distribution Tax should be replaced with compulsory
Dividend Withholding Tax (DWHT), regardless of the tax status of the recipient
shareholder- except reduction in DWHT due to the provision of applicable tax
treaty. DDT is not available for credit to the investor in its home country
against the local tax on the dividend received. This results in high tax incidence
for investing in India: Corp income tax plus DDT plus tax on dividend in the
home country. This encourages complex tax reduction structures, which no
jurisdiction appreciates, as borne out by the BEPS Action points. India can
move to DWHT in place of DDT. This will reduce significant amount of tax
litigation. Such a measure will go a long way in encouraging the much needed
long term foreign direct investment in India
Budget 2016: Expectation from budget with respect to Buy-Back of
shares - The additional tax payable by companies upon buy-back of shares is on
the amount which is the difference between the amounts paid by the company less
what the company received from the shareholder. This completely disregards the
amount paid by the shareholder on secondary acquisition of shares. Thus, a
shareholder who acquired shares at a significantly higher price than the
original issue price of the company, suffers much higher tax incidence on
account of the additional distribution tax. Also, the investor shareholder is
unable to claim credit for this tax in home jurisdiction and thus it results in
double taxation. There is actually double taxation of the same income: The
original shareholder who made secondary sale pays capital gains tax on the
gains made. These gains are ignored for levy of additional distribution tax and
become part of the computation for the additional tax levy. Restoring the tax
treatment to capital gains in the hands of the investor would remove this
anomalous situation. Daksha Baxi, Executive Director, Direct Tax, Khaitan &
Co
Budget 2016: The burden of expectations on FM Arun Jaitley is huge
and one cannot forget that the higher spending on account of implementation of
one rank one pension scheme (OROP) for armed forces and the 7th Pay Commission
recommendations are likely to make it even more challenging to meet these
expectations. The gains on account of Laffer Curve should be kept in mind while
bringing about the changes: simplification and clarity in tax laws will
undoubtedly improve tax compliance thereby increasing the tax revenue. Whether
FM Arun Jaitley succeeds in living up to all these expectations and implements
measures to spur growth and stability remains to be seen.
SOURCE
- financialexpress
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