Stand and deliver

In cricketing parlance ‘stand and deliver’ reflects an aura of nonchalance with minimum fuss and maximum outcome. Budget 2016 on first blush seems to be case of ‘stand but deliver’ with a mixed bag. There are pointers to specific and targeted areas for action, such as restructuring rates, roadmap for phasing out exemptions, concessions for startup and settlement of disputes.

New manufacturing companies will have a corporate tax rate of 28.84 per cent if incorporated on or after March 1, 2016, provided they do not claim any profit-linked or investment-linked allowances or accelerated depreciation.

Small enterprises whose turnover is not exceeding ₹5 crore shall be taxed at 33.45 per cent with effect from FY 2016-17. Also, startups incorporated between April 2016 and March 2019 shall be eligible for 100 per cent deduction of profits for three out five years.

However, minimum alternate tax (MAT) will continue to apply. Further incentives such as accumulated depreciation, R&D and SeZ are being phased out starting from 2017 to 2020.

The finance minister has also introduced a Special Patent Regime whereby 10 per cent tax shall be levied in India on worldwide exploitation of such a patent. A similar scheme in 1997 was introduced with overall tax of 30 per cent.

The deferment of place of effective management and general anti-avoidance rules will send positive signals to the international investing community. Further, higher rate of tax under section 206AA shall not apply to non-resident without PAN if they provide alternate document.

In respect of pending appeals before CIT (A), disputed tax and interest can be paid and all cases settled. Similarly, all penalty orders pending in dispute can be settled by paying 25 per cent of such penalty. This laudable step will ensure that three lakh tax cases pending before CIT (A) involving ₹5.5 lakh crore will be drastically reduced.

The objective of doing away with face-to-face assessment via e-assessment procedure is welcome and will considerably reduce the cost of managing tax matters. Interest on delayed refunds will be made with 9 per cent interest (taxable).

In the case of non-corporate taxpayers, the surcharge shall be increased to 15 per cent from 12 per cent where the income is more than ₹1 crore. Amendments to provisions of presumptive income will simplify taxation based on other cases that been produced necessary results.

The logic of continuing MAT remains a mystery since the effective corporate tax is around 24 per cent and we are heading towards 25 per cent in three years’ time.

The reintroduction of DDT in the hands of receiver whose dividend exceeds ₹10 lakh at the rate of 10 per cent is totally unexpected. Along with DDT of around 20 per cent, the cumulative cost of dividend will come to be 31 per cent. This is a case of double taxation and will come up for sharp scrutiny by the legal fraternity

Tax is a price one pays for civilisation. The process of development and overall feel good factor will improve once citizens realise the need to pay taxes taking into account the nine pillars on which the finance minister has built the tax proposals. The proof of the pudding is in ensuring that the tax-paying population increase from present 4 per cent to 23 per cent in the years to come.

The writer is a tax partner at EY. The views are personal