Speaking on the first panel at International Tax Review’s India Tax Forum, the panellists spoke of their concerns with the new tax law that will be implemented in April 2012.
The panel discussed a wide range of topics including how to handle indirect transfer of assets under the new law, the taxation of foreign service providers, controlled-foreign company rules as well as the country’s treaty override provisions.
“We have known about the DTC for a long time now and so we have had time to stop and analyse it. But in doing so, we have realised that a great deal has to be done if the law is, as was originally planned, fair and effective,” said Rohan Shah, tax leader at Economic Laws Practice and panel moderator.
Shah highlighted that the country has an estimated $19 billion backlog in pending litigation and described the planned GAAR provisions as “the heard of elephants in the room”.
One of the aims of the DTC is to tackle the country’s litigation problem. However, one panellist argued that this objective will not be achieved.
“Once implemented, there will be just as much litigation as there is under the Income Tax Act 1961,” said Porus Kaka, a senior Indian tax advocate.
Another of the panellists felt that the DTC will only go so far in creating a fairer and more efficient tax law.
“The DTC is happening and we have to prepare for it. But what is concerning is the lack of an effective tax authority that is able to effectively enforce the new law,” said Pallav Gupta, head of tax at ITC India.
“We are looking for more certainty and the DTC won’t provide that,” said James Badenach, Asia tax leader at Royal Bank of Scotland.
Badenach also described the planned treaty override provisions as “the biggest challenge in the DTC”.
The taxation of indirect transfer of assets sparked much debate between speakers.
Kaka argued that if there is no allegation of tax avoidance and if the purpose of the transaction is purely commercial then there is very little chance that the authorities will go after it.
However, panellists argued that the authorities will still go after such transactions but the likelihood of them winning is very slim.
“I fully expect there to be a number of test cases on this matter once the DTC becomes effective,” said Badenach.
The panellists concluded that the DTC will not achieve its main criteria of an efficient and fair tax system.
However, with Ashutosh Dikshit, DTC author and member of the DTC Committee, delivering a keynote to delegates tomorrow, many are intrigued to see what the official has to say in the defence of the draft income tax legislation.
For full coverage of the India Tax Forum and Dikshit’s speech, follow www.internationaltaxreview.com.
