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Doing Business In India in the New Tax Era
The tax framework in India is undergoing an overhaul. While the introduction of two key tax legislations, viz the Direct Taxes Code and the Goods and Services Tax has been deferred, the Indian Government has ushered in some key amendments through its annual Budget in the Finance Act 2012. Some of the key tax reforms concern negative list basis for assessment of service tax, regime for Advance Pricing Agreements, aside of introduction of the much controversy-laden General Anti-Avoidance Rules and retrospective amendments for taxation of offshore transfers and royalty transactions. Taxand India investigates this amended framework below, and in a new thought leadership piece Doing Business in India in the New Tax Era.
These significant changes necessitate careful study and diligent application. In our endeavour to apprise the Readers of the key amendments and their potential impact, we are pleased to present a compilation of our Thought Leadership articles to present points of view of our Firm's experts on select topics.These topics have been carefully chosen, keeping in mind the potential impact that the amendments carry for businesses in the years to come. These topics have been researched to present an expert view on matters connected with the amendments and on the changing landscape of India's tax policy and administrative practices.
Businesses, both Indian as well as multinational, breathed a sigh of relief on the one year deferral of the General Anti-Avoidance Rules. However, the retrospective amendments continue to attract much adverse reaction from local and international media. Tough measures to override established judicial principles in times of global and Indian economic slowdown coupled with a rising fiscal deficit could not have come at a worse time when businesses are hungry for bold economic policies. India's desire to balance its fiscal deficit by upping the ante on tax collections through retrospective amendments and widening the tax base will have to be weighed on the back of its competitiveness as an investment destination and restoration of business confidence, which stands at its lowest in the past two decades - this will surely be tested in the years ahead as the tax administration gears up to implement the will of the legislature.
In the near future, the Indian tax policy agenda is likely to be packed. Tax policy makers would be busy fine tuning and releasing subordinate legislation, administrative circulars and gearing up administrative infrastructure for a host of legislative measures, particularly for implementing the Advance Pricing Agreement regime and safeguards for administering the General Anti-Avoidance Rules; aside of acting upon the recommendations of the Parliamentary Standing Committee on the Direct Taxes Code and cultivating the much needed political consensus to implement the Goods and Services Tax regime. The taxpayers on the other hand, besides waiting with anxiety for announcements and analysing implications of changes businesses, would be gearing up to the new reporting and compliance requirements.
While the amendments have caused nervousness, the Government's resolve to address taxpayer concerns on complexity of law and reduce litigation is laudable. Though implementation of the General Anti-Avoidance Rules has been deferred, the Ministry of Finance has, in good time, released draft guidelines concerning application of these Rules, for feedback and comments. The Ministry of Finance has also recently setup an Advisory Group on International Tax, chaired by the Finance and Revenue Secretary and comprising of creating a formal platform for dialogue between the Government and businesses, would test the ability of the Indian policy makers to embrace changes aligned to international best practices. We are pleased to inform you about induction of our Firm personnel in various such expert groups and Government committees; a recognition of the Firm's domain knowledge.
No tax policy is complete unless it is viewed in context of business and hence, it is imperative that taxpayers keep an open dialogue with the policy makers. If we can facilitate this process, please feel free to reach out to our team members.