Retain service tax and excise duty rate

Rajdeep Endow, Managing Director, India & Global Delivery Lead

In the case of direct taxes:

1. Reduction in corporate tax rate: In view of the fact that the present Budget is expected to be intermediate in nature, insofar as it would pave the way forward for DTC, it will be commendable if CTR in FY 2012-13 is brought down – at least to match the proposed rate of flat 30 per cent in the DTC.

2. Stable MAT rate: When the industry was expecting a roll back in MAT levy in the last Union Budget, there was in fact a net increase of 0.08 per cent in the MAT rate. This year, it should be kept steady. Also, MAT should be rationalised – it should not exceed 50 per cent of the basic corporate tax rate. Increase in MAT negatively hits the cash flow of companies liable to pay taxes under MAT - there is financial loss on account of time value of money. Also, with the difference between the corporate tax and MAT now getting narrower, new entrepreneurs and startups are bound to find it all the more difficult to compete against established businesses.

3. Exemption to SEZ units from MAT provisions: In the last Budget, units operating in SEZs were brought within the ambit of MAT. FM should re-consider the change and relieve SEZ units from MAT provisions in this Budget.

4. Availability of MAT credit on amalgamation: at present, there is no express provision enabling availability of MAT credit of Transferor Company to Transferee Company in case of an amalgamation. Section 115JB should be amended to allow such carry forward.

5. Extension of advance ruling scheme for resident companies: this will help resident companies to sidestep ambiguity and circumvent hardship of paying taxes in case of different interpretation of law by them.

6. Re-opening of assessments: Appropriate provisions should be established for any re-opening of assessment and the period of re-opening should also be reduced to 2-3 years from the end of Assessment Year.

7. Timeline should be specified for Assessing Officer to pass appeal effect order: to give effect to order of higher appellate authorities, including relevant refunds.

8. Stipulation to Section 206AA (requirement of furnishing PAN) should be introduced: to the effect that this Section shall not be applicable in respect of persons who are not required to obtain PAN u/sec 139A.

9. Provisions to desist Assessing Officer from instigation of penalty proceedings in every assessment order: in the absence of any concealment of facts or 'mens rea', should be introduced.

10. Transfer pricing litigations: Frivolous litigation in transfer pricing needs to be brought to

a close. We expect FM to introduce measures for the same.

For indirect taxes:

1. Retain the rate of service tax and excise duty: the rollback of the stimulus both in excise as well as service tax rates should not been tinkered with – they should be maintained at 10 per cent.

2. Simplification of service tax refunds: The FM should consider the need to streamline the administrative process around efficient delivery of refunds to exporters of services. We anticipate that procedure for simplified and speedy refund of CENVAT credit will be announced in this Budget.

3. Negative list of services: the negative list model is followed worldwide and is recommended to be announced in India as part of the GST. As the government is expected to bring more services in the tax net while expanding the service tax base, it should come out with a negative list of services.

4. Elimination of double taxation - clarification is needed with respect to transaction that attracts both service tax and VAT on the same consideration. An amendment is required which should exclude from service tax such value which has already been subject to VAT/CST.

5. Consider reducing central sales tax rate: with GST roll out missing its deadline, it is recommended that CST rate should be reduced from 2 per cent to 1 per cent.

6. Implementation of Goods and Services Tax: from an indirect tax perspective, implementation of GST will be a historic reform. GST is still being thrashed out. A clear-cut and rational timeline for its implementation is hoped in this Budget.

Personal / individual taxes

1. Re-fixing tax slabs for individuals: Given the mounting inflationary pressure, the 'janta' is expecting a larger relief. If tax rates are retained at same level, the exemption limit must be hiked. The basic exemption limit of Rs 1.8 lakh can be increased to Rs 2 lakh, 30 per cent tax slab can apply to individuals with an annual income of more than Rs 10 lakhs, as against Rs 8 lakhs now and so on. Correspondingly, the total deduction available under Section 80C can be re-visited. It will be interesting to see if the additional deduction of Rs 20,000 in long-term infrastructure bonds is extended for one more year.

2. Foreign Tax Credit ('FTC') while determining tax deduction on salary: currently there is no provision for reducing the estimated FTC available to employees for taxes paid in other geographies while withholding taxes in India. Specific provisions allowing FTC at the time of withholding tax under the head Salaries are longed-for.

Union Budget 2012-13: Complete coverage