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Indian Budget - what tax changes can multinational companies expect?

Taxpayers, tax advisers and politicos alike are eagerly awaiting India’s 2016 Budget, which will be released on Monday [February 29]. Will BEPS be covered, and which Action Points will feature? Will there be an update on GST? What other indirect tax changes might there be?

Ahead of its free webinar on the day of the Budget, International Tax Review finds out…

Top of the wish-list for multinational companies must be a corporate tax rate cut. Finance Minister Arun Jaitley is expected to set out clear plans for a reduction, which will involve phasing out many of the exemptions and deductions which corporations use today.

“Indian corporates are awaiting the first tranche of reduction of corporate tax rates while at the same time awaiting the roadmap to be used by the Government for the purpose of phasing out the various exemptions and deductions,” said Rakesh Nangia, managing partner of Nangia & Co.

Taxpayers will also be eager to find out what will be happening with the minimum alternate tax (MAT), and with place of effective management (PoEM) provisions.

“Last Budget introduced a new tax residency test for foreign companies from fiscal year 2015-16,” said a BDO India client alert. “The related guidelines issued by Government for determination of PoEM are not yet finalised. Therefore, applicability of provisions is likely to be deferred.”

On MAT, Nangia said: “MAT was brought in only to address cases where tax liability was artificially reduced or eliminated due to incentive provisions. Once the incentive provisions are removed and corporate tax rates lowered, MAT will become unnecessary and should, therefore, be abolished.”

Indirect tax

The big indirect tax story of the 2016 Budget will, if there is any major announcement, be GST. However, with the country-wide initiative stalling based on issues between central and state authorities, there are other aspects of the Budget which could grab attention.

“With GST still being delayed due to political reasons, the upcoming Union Budget 2016-17 has raised industry expectations due to various other factors and government initiatives, such as the ease of doing business, Digital India, Make in India and for overall continuity in economic reforms,” said Ravi Lakdawala, head of transfer pricing and international tax at German chemical and pharmaceutical company Bayer in India.

“In this Budget, we hope to see adequate steps being taken to provide much-needed clarity to introduce the draft GST legislative framework, including the ‘place of supply rules’, in the public domain for consultation by stakeholders,” he continued.

“The government should break the political deadlock and reach a consensus that ensures the passage of the 122nd CAB in the Rajya Sabha (upper house of Parliament) in the Budget session and announce the roadmap for the implementation of GST and provide clarity on the date of implementation.”

Tax disputes

The Government is also likely to announce measures aimed at softening the aggressive litigious environment in India by curbing disputes, making the country more attractive for foreign investors.

“The recent report by Justice RV Easwar (Ret'd) provides detailed recommendations on the amendments required in law to cut down on litigation,” said Nangia.

“The Government is expected to accept a number of these recommendations by way of suitably amending the legislation in the Finance Bill. Further, the Government is also likely to indicate its commitment towards accepting more such recommendations as and when they come.”

International Tax Review will be running a free webinar during the Budget to analyse the most important aspects for multinationals. Click here for more details.

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