CII-EY White Paper titled “ Evolving Global Tax Policy Trends: Outlook for India” Released

A White paper on “Evolving Global Tax Policy Trends: Outlook for India” by CII and EY, which explores some of the emerging trends in global taxation and delineates its implications on India’s tax policy, has been released.

The paper acknowledges that in an increasingly interconnected global economy, wherein the quest to attract cross-border investments is of increasing importance, many countries across ideological spectrum and at varying levels of development are adopting investor friendly approach by ensuring certainty and predictability in their tax systems and reducing the cost of compliance. At the same time, it is also observed that emerging economies are expecting foreign investors to contribute to the exchequer by paying the taxes which are due to them. 

Speaking about the white paper, Mr Chandrajit Banerjee, Director General, CII, said that “our country presently needs a tax system which is simple, broad-based, less litigious and transparent and ensures international competitiveness. We need to benchmark our systems with international best practices. The white paper provides deep insights into evolving tax landscape around the world and in India.”

The White paper brings out that internationally, tax avoidance has become an area of concern and several countries are becoming apprehensive about tax evasion and avoidance. It is in this context that the debate over base erosion and profit shifting(BEPS) has assumed special significance for both OECD and non-OECD countries.

The paper informs that in July 2013, OECD has launched an action plan on BEPS, based on the recommendations of the G20 Finance Ministers, identifying 15 specific action steps needed to equip governments to prevent ‘double non-taxation’. Major developing countries like India and China which have identified base erosion as a major concern, are actively working with OECD on BEPS. The substantive tax issues involved in BEPS are complex and addressing the same requires a multi-dimensional approach especially as the apprehension is about whether companies follow he spirit of law or whether they pay fair share of taxes as per the law of the land. The paper also referred to ‘digital economy’ issues which are quite relevant in Indian context and that India is actively working with OECD on BEPS. The OECD BEPS discussion is also focused on developing an approach for increased information reporting by MNCs to tax authorities.

The paper also dwells on the issue of transfer pricing enforcement which has emerged as the risk factor for MNCs and tax authorities around the world. Continued growth and reach of multinational businesses across the world has created a complex web of cross-border commercial transactions among related companies, and the world’s tax authorities want to ensure that they tax their rightful share of the income from those transactions. Transfer pricing is increasingly becoming a source of conflict between MNCs and the revenue authorities leading to a disputes and litigation. This has led to the creation of alternative dispute settlement mechanisms such as advance pricing agreements, safe harbours, among others.

According to the paper, nations are legislating the doctrine of General Anti-Avoidance Regulations in their tax code or strengthening their existing code to prevent the perceived avoidance of tax and tax evasion. Going forward, there could be increasing attempts to assess the global value chain in India which would require tax payers to maintain stronger documentation to avoid tax.

Another major area covered in the White Paper relates to indirect taxes and mentions that in the aftermath of the global financial crisis, countries are more inclined towards raising revenues through VAT. The paper recommends an early implementation of GST in India which would simplify and rationalize the current indirect tax regime in the centre and states, eliminate tax cascading and put the Indian economy on higher growth trajectory.

The paper calls for comprehensive reforms in GAAR, transfer pricing and indirect taxation. The aim is to bring clarity on the various provisions of international taxation which would address the concerns of industry and bring investor confidence back in the country.  On GAAR, the paper recommends that it should be applied as an exception rather than as a rule, GAAR should not be applied in case SAAR is in place, among others. On transfer pricing, the paper maintains that a taxpayer needs to carefully consider his options of dispute resolution and determine the comparative benefits of adopting the safe harbour rules, continuing with the litigation or applying for APAs.  In the are of indirect taxes, the issues relate to recent apex court judgements, introduction of punitive provisions under customs, excise and service tax laws in the Union Budget, state VAT regime and challenges to FTAs.   

Government Committed to Bring Efficient Tax Administration and Industry-Friendly Tax Structure: Sumit Bose, Revenue Secretary

Mr Sumit Bose, Revenue Secretary, Ministry of Finance, re-iterated the ministry’s commitment in bringing about efficiency in tax administration and establishing an industry-friendly tax structure. The way forward in the reform of the tax regime was to streamline the tax administration while following a consultative and collaborative approach with the various stakeholders, he said, while addressing the gathering at the 1^st Global Tax Summit, organized by Confederation of Indian Industry at Taj Place, New Delhi today.

Mentioning the various initiatives taken by the Government, RBI and the Ministry of Finance in the last one and a half years to help the economy navigate through the present difficult situation, Mr Bose expressed his optimism in India’s robust growth story going forward.

Talking about the recent developments in the country in the area of International Taxation and the recent steps taken by the Ministry of Finance to address the concerns of the investor community, Mr Bose observed that following a consultative and collaborative approach, involving suggestions of various stakeholders has a significant importance in developing a robust, efficient and industry friendly tax system.

Highlighting importance of Base Erosion and Profit Shifting (BEPS) for India, the Revenue Secretary stated that “base erosion” remains a key concern for developing countries. He added that “residence” based taxation is under strain and is no longer an efficient method for just and fair allocation of profits. He specifically referred to ‘digital economy’ issues which are quite relevant in Indian context.

While appreciating the recent steps taken by the government to revive the investors’ confidence, Mr Rajiv Memani Chairman, National Committee on Indirect Taxes/GST, CII said that these steps will have a far-reaching consequence on the flow of investments into the country. On GST Mr Memani urged the government not to compromise with the GST design and thanked the Government on having approached an open and consultative approach in taking this reform forward.

Highlighting the importance of the clarity and stability in the tax regime for inspiring investors’ confidence, Dr Sudha Sharma Chairperson, Central Board of Direct Taxes, Ministry of Finance elucidated the various steps taken by the ministry in establishing a non-intrusive, non-interfering and assessee friendly tax system.

Dr Sudha Sharma assured the industry present at the conference that all concerns would be addressed in terms of disputes that might appear because of the tax structure or the interpretation of the tax structure and requested the industry to respond with the same spirit in paying the taxes and supporting the growth and development of the country.

In his concluding remarks, Mr R.K Agarwal, Chairman, Direct Tax Committee, CII urged that more steps be taken to engender investor confidence through tax reform and bring back an environment which is conducive to business.

Earlier, in his welcome remarks, Mr Chandrajit Banerjee, Director General, CII said that the industry is appreciative of the consultative approach adopted by the Ministry of Finance in the evolution of the tax system in India. However, he pointed out that if revenue collection becomes the single point focus then it might not be conducive for creating an enabling business environment.