Corporates are facing an unusually complex and volatile environment. They are grappling with challenges in view of the economic slowdown in various countries, which in turn has spurred unusual monetary interventions and fluctuations in exchange rates.
In such a scenario, corporates would like to see, above all, a Budget that provides predictability, consistency, simplicity and a level-playing field. The Finance Minister, in his last Budget speech, mentioned the corporate tax rate would be brought down to 25 per cent over a period of time, and all exemptions and deductions phased out. While this is a welcome move, incentives that help the economy grow and be competitive require to be continued.
Tax incentives on R&D expenditure amounts to only 8 per cent of the total tax incentive of ₹98,400 crore. Several countries, where the tax rate is 20 per cent or below, still provide incentives on R&D expenditure. While the Centre’s thrust is towards innovation and creativity under ‘Make in India’, it is essential that the relief towards R&D is continued.
Expenditure incurred towards Corporate Social Responsibility could also be allowed under the IT Act. Several corporates are facing prolonged litigations on the subject of Transfer Pricing.
It is suggested that transactions between two related domestic industries that do not enjoy tax arbitrage be exempt from the purview of Transfer Pricing, as it would remove additional administrative burden and there is no revenue loss to tax authorities.
The recent amended provisions of the Companies Act, including those relating to internal finance controls, systems and business processes, adoption of Accounting Standards in line with international countries, and tax audits, already provide more than adequate safeguards.
Therefore, similar to the minimum rate of tax of 18.5 per cent provided under section 115 (O) (1B) of the IT Act, the Centre may examine the possibility of restricting the maximum rate to 25 per cent tax on the book profits, subject to limited exemptions and deductions, which would lead to simplicity and avoid unnecessary litigation.
There are still certain sectors that suffer from incidence of inverted duty structure and the same has to be corrected. Import of finished product with zero duty/concessional duty on any product should be strictly avoided as domestic manufacturers have to suffer the disadvantage of additional tax. It is disappointing that the draft report of the joint committee on various business processes under GST has recommended dispensing of duty-free procurement, even relating to exports, and the committee wants industry to procure materials by payment of duty and claim refund from the Centre.
Refund timeHowever good the intention of the government to refund within the time line of 90 days may be, in practice, it takes more than one year to get the refund.
Therefore, the present procedure of procurement of goods without payment of duty, for use in manufacture of export goods under Rule (19) (2) and (3), should continue even after introduction of GST in order to have level-playing field with international competitors.
It is acknowledged that the Central Government tax to GDP ratio of 10 per cent and 15 per cent to 16 per cent, including State government’s share, is lower as compared to several other countries and therefore the Centre has to increase its revenue.
However, given that only 3-4 per cent of the population pays direct tax, there is considerable scope for expanding the tax base, rather than burdening corporates with additional tax measures.
The writer is President & Group CFO, TAFE. Views are personal