bmradvisorspostbudgetwebinaranalysis budget 2012

8/2/2019 BMRAdvisorspostbudgetwebinaranalysis Budget 2012

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SIGNIFICANT POLICYANNOUNCEMENTS


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Macro-economic scenario

Estimated GDP growth of 6.9% (2011-12); expected to grow to 7.6% +/- 0.25%

in 2012-13

Overall deficit expected to decline from 5.9% to 5.1% next year

Inflation (expected) to stabilize

12 th Five Year Plan aims faster, sustainable and more inclusive growth

Legislative amendments proposed to FRBM Act for expenditure management

subsidies to be capped at 2% of GDP

Foreign direct investmentBuild consensus on 51% FDI in multi-brand retail

Proposal to allow 49% FDI in aviation

Silence on Insurance and Defence

SIGNIFICANT POLICY ANNOUNCEMENTS

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Capital market reforms

QFIs allowed access to the corporate bond market

Broad-basing and incentivising IPO participation

Disinvestment INR 300 billion to be raised through disinvestment

Boost to infrastructure

12 th Plan period investment in infrastructure estimated at USD 1 trillion half

expected from private enterprise

Tax free Government bonds doubled to INR 600 billion for financing

infrastructureConcessional tax withholding of 5% on specified infrastructure borrowings


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Foreign debt (ECB) liberalisation for infrastructure including:

Part financing of rupee debt of existing power projects

Capex on maintenance & operation of toll systems for roads/ highways

Low cost affordable housing

Working capital for airlines capped at USD 1 billion


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DIRECT TAX PROPOSALS


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No change in corporate tax rates

FM to table bill on Direct Taxes Code (DTC) expected to be implemented

from April 2013

Several retrospective amendments to negate court rulings

Some DTC proposals fast forwarded GAAR, APA introduced

Enhanced rigors for domestic Transfer Pricing

Crackdown on tax evaders

KEY CORPORATE TAX PROPOSALS

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Vodafone ruling Budget rewrites legislation retrospectively

Source rule* redefined from April,1961

capital asset to include management and control rights

Transfer to include parting with or creation of right, notwithstanding that suchtransfer flows from transfer of shares of an offshore entity

Interest/Ownership in offshore entities deemed to be situated in India, if its valuederived substantially from assets located in India

Scope of term through clarified to include by means of, in consequence of, orby reason of

Withholding tax to apply to non-residents; whether or not it has presence inIndia

Validation clause to legitimize recovery of tax on indirect transfers

* Section 9(1) Retrospective amendment

OFFSHORE TRANSFERS DEEMED TAXABLE

Rules of game overhauled far reaching impact oncross-border business restructuring

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GAAR FAST FORWARDED

Based on DTC Bill without factoring Standing Committee recommendations

Doctrine of substance over form codified to deter aggressive tax planning

Revenue may declare an arrangement as impermissible avoidance arrangementif the main purpose is to obtain tax benefit and the arrangement

creates rights/ obligations not normally created between persons dealing at armslength; or

results in abuse of provisions of tax laws; or

lacks or is deemed to lack commercial substance; or

is carried out in a manner which is normally not employed for bonafide purpose

If GAAR invoked Revenue empowered inter-alia to:

disregard or combine any step in the arrangementlook through the arrangement by disregarding the corporate structure

re-allocate income/ expense, re-characterise equity into debt

treat the place of residence of any party or situs of an asset or transaction otherthan place or location mentioned in the arrangement

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GAAR FAST FORWARDED

Onus of proof on the taxpayer Contrary to Standing Committeesrecommendations

Limited treaty override for effective application of GAAR in cross bordertransactions

Board to frame guidelines for conditions

Assessment procedure for GAAR Annexure 1

Challenges

Onus to prove commercial substance in holding structure

Planning M&A and business restructuring transactionsObtaining tax benefit key trigger

Round trip financing specifically covered

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OTHER ANTI-ABUSE PROVISIONS

Share subscription > FMV of shares; excess taxable*

Issue of shares (at premium) to residents in excess of FMV will be treated asincome

Not applicable to investment by Venture Capital Funds

Others

Unexplained cash credits, unaccounted investments** to be taxed atmaximum marginal rate of 30%; no allowance for expenditure

Tax return filing mandatory for residents :Ownership of asset including financial interest outside India

Signing authority in an offshore bank accountSpecial trials for prosecuting tax defaulters

Bar of limitation extended from 6 to 16 years for offshore assets

* Section 56(2)

** Section 68

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TRANSFER PRICING

Unilateral APAs introduced from July, 2012, in line with DTCFlexibility to use unspecified methods under APALimited clarity on bilateral APADetailed guidelines awaited

Specified domestic transactions covered from April, 2012

Transactions between Indian entities belonging to the same group coveredCompliances at par with international transactions

Definitions altered retrospectively from April, 2001 to expand coverageInternational transaction to include business restructuring, capital financing,guarantees, inter-company receivables/payablesIntangibles to include marketing, human, location, business etc

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INDIRECT TAX PROPOSALS


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Increase in peak rate of excise duty and service tax from 10 to 12 percent

Lower rates of excise duty have also increased from 5 percent to 6 percent

and from 1 percent to 2 percent, with certain exceptions

No change in the peak rate of customs duty

No change in CST rate

Comprehensive overhaul of the service tax law

Initiative for merging administration and compliance of excise and service

tax steps towards introduction of GST

INDIRECT TAX - OVERVIEW

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Model draft legislations for Central GST and State GST under preparation

GST Network will be set up as a National Information Utility and will become

operational by August 2012

However a clear time line for GST continues to elude

INDIRECT TAX - OVERVIEW

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Comprehensive taxation of all service activities

Specific exclusions covered under negative list and exempt list

Existing concepts relating to taxability of various revenue streams,

classification, valuation, rebates & exemptions, exports & imports, credits

scheme would change

Services defined to mean any activity carried out by a person for another

person for consideration

Key exclusions are transfer of title in goods and immovable property; money and

actionable claim transactions

SERVICE TAX

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Exempted services include health care services and select public

infrastructure

Illustrative list of services which may now be liable to service tax:

Non-compete, right of first refusal

Services by members to unincorporated association of persons

Loyalty programme

Cancellation of contract

Transfer of business

International lease lines

SERVICE TAX

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Period of limitation increased from 12 months to 18 months

Power for compounding of offences to Central Government proposed

Settlement Commission provisions introduced

Removal of monetary limit for self-adjustment of excess service tax paid

Non-issuance of invoice no longer a trigger for prosecution

SERVICE TAX

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Pre-identification of destination of sale and VAT registration added as

conditions for ACD exemption on specified products

New category of CBU cars introduced for customs duty purpose with

FOB value of more than USD 40,000 and

engine capacity of 3,000 cc for petrol and 2,500 cc for diesel

BCD rate for such cars increased from 60 percent to 75 percent

Customs duty incentive for MRO exemption to parts and testing

equipments

Duty reductions announced for fertilizer, coal mining, infrastructure & roads

sector

CUSTOMS

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Large automobiles (of length exceeding 4m) would attract duty on the basis

of engine capacity:

Below 1500 cc Rate hike from 22 percent ad valorem to 24 percent ad valorem

Above 1500 cc Rate hike from 22 percent ad valorem plus INR 15000 per unit

to 27 percent ad valorem

Duty incentive for MRO exemption to parts and testing equipments

EXCISE

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ACTION STEPS FOR BUSINESSES

Comprehensive overhaul of the service tax law will necessitate relook at

current tax positions

Analyze impact of change in regime for respective businesses

Review planning measures implemented by the businesses

Identify structuring options

Prepare for the changes revised compliance requirements, realignment of

IT systems

Assess the impact of law and examine need for dialogue; obtain clarificationfrom the Government

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BMR TAKE


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BMR TAKE ON BUDGET

Roadmap for cutting deficit

External factors could worsen inflation

Curtailing expenditure on subsidies intent vs outcome

Stringent GAAR & anti-abuse provisions

Retrospective tax amendments impose onerous responsibilityTransfer pricing law strengthened

Paradigm shift in Taxation of Services

Visible roadmap for tax policy reforms (DTC and GST)

Click here for BMR analysis on Budget 2012.

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ANNEXURE 1 (GAAR - ASSESSMENT PROCEDURE)

Tax Officer makes a reference to

Commissioner during assessment

Commissioner makes a reference to the

Approved Panel *

Directions to the Tax Officer to make

adjustments

Tax Officer passes order confirming the

adjustments

Directions to the Tax Officer to drop

GAAR proceedings

Commissioner is not satisfied with taxpayers explanations

Assessee can prefer an appeal before

the Tribunal

Commissioner is satisfied with taxpayers explanations

Approved Panel is satisfied with taxpayers explanations

Approved Panel is not satisfied with taxpayers explanations

Taxpayer has to pay tax

Taxpayer accepts the order passed by the Tax Officer

Taxpayer does not accept the order passed by the Tax Officer

* 3 member collegium of Commissioner or higher ranking Tax officers

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bmradvisorspostbudgetwebinaranalysis budget 2012

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