The panel of Parliament examining the Direct Taxes Code (DTC) Bill has almost finalised its recommendations. It wants more taxpayer-friendly measures. With the government expected to bring provisions in the coming Budget to change the rules that led to it losing in the tax dispute with Vodafone in court, the standing committee on finance feels these changes shouldn’t harm genuine investors. And, there must be a larger dispute resolution panel than that proposed by the Bill. The committee is chaired by Bharatiya Janata Party leader and former finance minister Yashwant Sinha. It will meet again on Friday and should finalise the report in a couple of meetings, those in the know told Business Standard . The government expects to table the report in the Budget session, slated to begin next month. The plan is to introduce the code from April 1, 2013, in place of the current Income Tax Act. The panel’s draft report has also asked the ministry to be clear on the fiscal implications of tax treaties with other nations. The government is currently renegotiating a Double Taxation Avoidance Agreement (DTAA) with Mauritius, to be able to impose capital gains on investments by third-country investors routed through the island nation. In its draft report, the panel agrees with the Bill’s provisions on the corporate tax rate. The Bill proposes a rate of 30 per cent, the same as now. It also proposes to tax foreign companies at a rate of 30 per cent instead of the current 40 per cent, with which the committee agreed, said the sources.
No stringent GAAR
Those tracking the development said the committee wanted the finance ministry to bring greater clarity in the proposed General AntiAvoidance Rules (GAAR) on taxes, so these provisions do not penalise a tax payer with legitimate reasons for such business transactions, to avoid paying more tax. The DTC proposes the Central Board of Direct Taxes would issue guidelines on the circumstances in which GAAR could be invoked and affected taxpayers could approach aDispute Resolution Panel (DRP) against an order made in pursuance of the Commissioner’s directions under GAAR. Experts say GAAR could be used to prevent the recurrence of disputes such as between the revenue department and Vodafone over its transactions with Hong Kong-based Hutchison for equity stake in Indian company Hutchison Essar, now Vodafone India. While the tax department wanted Vodafone to pay in $2 billion capital gains tax as it purchased shares in an Indian company, the London-based company disputed it, saying the transactions happened outside India. Recently, the Supreme Court ruled in favour of Vodafone. The Bill says the DRP would have three commissioner-rank people. The standing committee says there should be independents, too, on it.
On tax treaties with other nations, the committee wanted the finance ministry to end uncertainty so that India’s credibility does not suffer. “The ministry should be clear on the fiscal implications of treaties and there should not be any fiscal ambiguity,” those privy to the information said.