International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Reflections on India's Budget 2016

Budget 2016 has provided a big thrust to the development of the agricultural economy and infrastructure in India while bringing about contemporary tax reforms in line with international practices.

The Indian Government has, through the Budget 2016 speech, made a conscious effort to improve the ease of doing business in India, reduce litigation and compliance and provide a taxpayer-friendly environment.

The Finance Minister (FM) attempted to reduce the corporate tax rate, which he had promised last year; however, it is restricted to new manufacturing companies (which will face a 25% rate) and micro, small and medium enterprises (MSMEs) – for which the rate will be 29%. Perhaps fiscal compulsions deterred the widely-expected broad tax rate cut. The roadmap to phase out tax incentives was unveiled, providing certainty as well as time for taxpayers to plan and arrange their business.

There were many positive announcements – providing complete pass-through status to real estate investment trusts (REITs), infrastructure investment trusts (InvITs) and asset reconstruction companies (ARCs) by exempting them from dividend distribution tax (DDT). This will enhance the competitiveness of these vehicles and promote investment in the real estate/infrastructure sector.

The FM also made an honest attempt to go one step further on retrospective amendments, providing affected taxpayers an opportunity to pay off taxes and get interest and penalties waived. The introduction of a fresh amnesty programme in direct taxes, with more benign interest and penalties along with assurances against prosecution, may prompt far greater participation. Also, the rationalisation of penalty provisions and the dispute resolution procedure for past disputes up to the appellate level will reduce the litigation backlog and free up judicial time. The Budget also rolls out a host of administrative reforms by way of fixing loopholes and measures to make it a taxpayer-friendly environment.

The new regime of taxing income from worldwide exploitation of patents developed or registered in India will allow India to compete with developed economies that provide similar relief and give a great fillip to research, development and innovation. Also, the Budget has taken the initial steps in implementing BEPS Project outcomes in the form of an equalisation levy cess of 6% in B2B digital transactions and the introduction of country-by-country reporting (CbCR) in transfer pricing documentation. Thankfully, the €750 million limit for group revenue has been retained, which means it will affect a very small number of Indian companies.

From an indirect tax standpoint, the inverted duty structure for the IT industry along with the reduction of customs duty on inputs and raw materials is aimed at encouraging domestic manufacturing and job creation. The silence on GST – the most anticipated tax reform – is disconcerting. While some subtle steps have been taken, taxpayers had hoped for a more positive affirmation in terms of an action plan and timeline.

Maulik Doshi is a partner at SKP Group, a member of Nexia International

more across site & bottom lb ros

More from across our site

Charlotte Sallabank and Christy Wilson of Katten UK look at the Premier League's use of 'dual representation' contracts for tax matters.
Shareholders are set to vote on whether the asset management firm will adopt public CbCR, amid claims of tax avoidance.
US lawmakers averted a default on debt by approving the Fiscal Responsibility Act, but this deal may consolidate the Biden tax reforms rather than undermine them.
In a letter to the Australian Senate, the firm has provided the names of all 67 staff who received confidential emails but has not released them publicly.
David Pickstone and Anastasia Nourescu of Stewarts review the facts and implications of Ørsted’s appeal at the Upper Tribunal.
The Internal Revenue Service will lose the funding as part of the US debt limit deal, while Amazon UK reaps the benefits of the 130% ‘super-deduction’.
The European Commission wanted to make an example of US companies like Apple, but its crusade against ‘sweetheart’ tax rulings may be derailed at the CJEU.
The OECD has announced that a TP training programme is about to conclude in West Africa, a region that has been plagued by mispricing activities for a number of years.
Richard Murphy and Andrew Baker make the case for tax transparency as a public good and how key principles should lead to a better tax system.
‘Go on leave, effective immediately’, PwC has told nine partners in the latest development in the firm’s ongoing tax scandal.