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Exclusive: An Analysis Of India's Budget 2013
Expectations were elevated also on account of a purposeful approach that the Government appeared to demonstrate since September 2012. Taxand India discusses how Budget 2013 did not quite deliver to these expectations.
Unfortunately Budget 2013 is silent on a number of the matters submitted by the Shome Committee in September 2012, in particular the taxability of indirect transfers such as the one concerning Vodafone. The Finance Minister has clarified that a number of these matters, including indirect transfers, are still under consideration. The more probable reason for the inaction is the ongoing negotiations with Vodafone, and clarity will likely emerge only once these discussions conclude.
The revised GAAR provisions per Budget 2013 also do not consider a number of salutary recommendations contained in the Shome committee report. Tax governance best practices would suggest that the Government should explain the recommendations that it has accepted and the ones that it has chosen not to act upon along with reasoned explanations, however to-date this has not happened.
Other key highlights
- Surcharges find their way back for some "super rich" individuals and for profit making entities
- Share buy backs by unlisted companies will be subject to a distribution tax
- Royalties and fees for technical service fees will be taxed at 25%, up from 10% presently, subject to tax treaty relief
- Tax treaty relief itself will be conditioned on proof of tax residence (which was always the case) as well as beneficial ownership (a condition that has been implicitly 'introduced')
Despite the Finance Minister's call for tax clarity, an overhang of uncertainity persists. Tax revenues are budgeted to grow at 19.06% from the revised estimates for FY2013 while the fiscal deficit has been targeted at 4.8%. Clearly, a number of factors will need to align and fall in place for these numbers to materialise. These go well beyond the budget and policy announcements.