A day before the direct tax code (DTC) panel is expected to submit its report to the government, experts are anxious to see it providing for a cut in corporate tax rate to 25% across the board which would also eliminate the need to apply minimum alternate tax (MAT) on companies. Further, they hope the DTC would bring about radical changes to reduce litigation and cut the cost of doing business in India.
After a delay of over a year due to retirement of the then chairman of tax panel for drafting DTC, Akhilesh Ranjan, the current CBDT member would submit the report to the government on Wednesday. Although he has earlier said that the code to replace 58-year law would largely deal with simplification of language, tax experts hope that it would also bring much needed changes to the direct tax regime.
“The total tax rate should be low enough to be comparable to competition countries in the world, i.e. no more than 25%. The various surcharges and cesses complicate, make the tax assessment very complex and unfavourable. They also distort the tax rate,” said Daksha Baxi, head of international tax at Cyril Amarchand Mangaldas.
Amit Maheshwari, partner at Ashok Maheshwary & Associates said that tax rates should be cut down across the board. There is no reason for LLPs to be taxed at a higher rate. Export linked incentives/exemptions should be reintroduced. There should be higher tax deductions on generating employment. Taxation of capital should be ended which means capital gains on sale of securities should not be taxed. MAT and DDT should be eliminated.
Another major issue that the stakeholder is the litigation management by the department. Over Rs 10 lakh crore is stuck in cases, some of which have been running for over 10 years.
“Majority of wholly owned subsidiaries of foreign companies face a host of tax allegations, leading to long-drawn tax litigation and frustration to the foreign companies, who would prefer to shift their manufacturing bases to other countries such as China. They do not mind paying legitimate taxes but long drawn litigation every year is something they want to avoid, as it adds to ‘cost of doing business in India’,” Baxi said.
Rakesh Nangia, managing partner at Nangia Advisors (Andersen Global) said that the new DTC is also expected to remove the loopholes that lead to tax evasion by multinational companies. Further, with the world economy becoming borderless from business perspective, the Indian tax laws need to address the tax challenges of the digitalised world in a more comprehensive way, he added.
However, he said that DTC should allow for tax exemptions to exist contrary to the government stand over the last five years, which has been reducing tax rates but also phasing out exemptions.
“India should continue to incentivise the corporate sector by providing profit linked deductions, to reduce the tax outgo of the corporate sector. Financial incentives, including tax credits and tax exemptions, are a major tool for decreasing the upfront costs of corporates. As tax costs are the key drivers of investment decisions, this is the opportune time to incentivise the foreign investors, with corporate tax benefits,” Nangia said.