1. The elasticity of the Code should be such that governments avoid the annual Finance Bills to undertake amendments as this has been a significant cause for rising disputes in the past decade. Furthermore, the stability of tax rates can be guided by the Code, instead of an annual review exercise. The Code should do away with complex surcharge and opaque Cess and settle the tax rate at 25 per cent or at least spell out the phased reduction.
2. The effective Dividend Distribution Tax (DDT) levy of 21 per cent puts India in an uncompetitive situation, besides being unique. For foreign investors, in particular, DDT can be done away with, and instead withholding taxes as per the Treaty can be considered. This will facilitate ease in the repatriation of profits and enable investors to claim a foreign tax credit in the home country. It will certainly propel FDI.
Segmentation of taxpayers amongst individuals, MSMEs, and large taxpayers, including multinational companies, are essential to streamline the IT department’s efforts and channel its resources, besides effective assessment procedure, investigative powers and taxpayer services. LTU should be given a renewed thrust.
Illustration by Binay Sinha
4. DTC can attempt at reigning in administrative discretion at the assessment and investigative functioning of the department. Adequate checks and balances by way of supervisory oversight can be built in to avoid high-pitched assessments and curb actions of over-zealous officials.
5. Functioning of dispute avoidance bodies such as Settlement Commission, Dispute Resolution Panel and AAR can be reviewed in a manner to enhance its efficacy, as most of them have been rendered ineffective to curtail rising disputes. Matters which are in dispute should be dealt with a combination of alternate dispute/settlement mechanism by streamlining the process of resolution before the first appellate forum. A combination of administrative guidance and instilling a sense of accountability amongst assessment and appellate officials shall enhance the effectiveness of the process. Innovative options such
as a Compromise Committee and/or mediation process at the apex tax administration level shall improve investor confidence.
6. Targeted incentives identifiable with economic benefits by way of mega capital investments and largescale employment opportunities justify reviewing tax holiday benefits. Incentivising industries with high employment and investment potential, mainly, located in large industry hubs, could be a way to reignite growth. The Make in India programme has tasted success in IT products & automobiles. Similarly, hubs for chemicals/petrochemicals & engineering should be identified for target incentives. The incentives need not be exemptions but say concessional rates to encourage investments.
7. Dedicated portions of the Code dealing with complexities of key taxpayer segments such as non-residents and taxation of NPOs, which have been areas of high visibility requires greater focus and calibration. Given the overwhelming verdict, the government should accelerate the enactment of DTC.
(The writer is managing partner, BMR Legal)