Rohan Shah, Managing Partner, ELP says, the mechanism of putting cess in place is disappointing and is undesirable. He, however, points out that this ultimately means that we are moving in the direction of revenue neutral rate, adding that it should be taken positively since a higher increase in service tax rate was anticipated.
Shah was expressing his opinion on the implementation of various cesses like infrastructure cess and Krishi Kalyan cess in the Union Budget presented on Monday. Given the limited fiscal room available, it was unlikely that the Finance Minister could have cut corporate tax rate, says Pranav Sayta, Partner at EY India.
Sayta feels that it would have been helpful if a clear roadmap was provided on rationalisation of exemptions and incentives.
In his Budget speech, the FM had highlighted that the reduction in corporate tax rate has to be calibrated with additional revenue expected from the incentives being phased out.
Bobby Parikh, Chief Mentor, BMR Advisors, however, believes that this Budget has cleared the big picture and it is now fairly certain that the 25-percent corporate tax rate will go through.
The experts believe the subtle changes through cess indicate that the government is heading towards Goods and Services Tax (GST).In an interview to CNBC-TV18's Menaka Doshi, Pranav Sayta, Bobby Parikh and Rohan Shah gave their take on Arun Jaitely's Union Budget and their outlook on the road ahead. Q: Is the messaging on this clear. Should he had made formal steps towards this cleaning up of this corporate tax regime?Parikh: I actually quite okay with what has happened. There is a very clear roadmap - roadmap meaning somethings are going away in 2017 and the rest will go away in 2020.Q: And some new deductions and exemptions are coming on? You are okay with it?Parikh: My sense is that in any situation the governments will always have something that they want to favour and something they want to promote. So, there will be some of that stuff which will come in but the big picture stuff is getting clearer and the 25 percent will follow.Q: Taxing the rich - the 10 percent additional tax on dividend income of Rs 10 lakh per annum and more, the crorepati surcharge increased from 12 to 15 percent but on the other hand he has done a whole lot of beneficial things for investment trusts. So, if you look at High Net Worth Investors, if you look at rich people, they have got the short end of the stick, maybe fairly so. Asset Reconstruction Company (ARCs), (Real Estate Investment Trusts) REIT, infrastructure investment trust (InvIT) some pass throughs being offered on those which will be helpful. So, if you were to add this to the direct tax changes that we have discussed so far what would you say the shape this policy is taking?Parikh: Before this Budget there was this apprehension that this was going to be a Thomas Piketty Budget and there would be the social equality-inequality and all of that kind of things which the Budget would seek to address. We have had precedence of income over Rs 1 crore being subject to higher tax and so the surcharge has also been increased from 12 percent to 15 percent. So, dividends are also going to be taxed. I was also thinking of my familiarity with promoter holding structures, typically there are investment holding companies or investment holding vehicles which sit on top of the main list co. So, I don\\'t know how much more revenue is going to come because if there is an investment holding on top then it is not liable to this additional tax.Q: The 10 percent only applies to individuals, not companies, trusts?Parikh: Correct, not companies.Q: Would you agree is the messaging on this clear? Should he have made firmer steps towards this cleaning up of the corporate tax regime? Shah: I think the path is clear and also, I do not think the fact that you have a lower rate or a more benign rate is inconsistent with your supporting what you want to support through exemptions. And that need is going to evolve. So, just because we are going to 25 does not mean that there will never be any exemptions. World over there are lower rates and there are still incentives. We have to understand that.Q: Your thoughts on the fact that we are on schedule for general anti-avoidance rule (GAAR) which is fairly controversial. Thankfully, place of effective management (PoEM) has been deferred, but the guidelines have come so late, it had to be deferred,Shah: From my perspective, there is a certain sort of trajectory that tax globally is taking, and whether you talk about PoEM, whether you talk about the GAAR, whether you talk Base Erosion and Profit Sharing (BEPS) implementation, it is all part of one move. And from that perspective, you are seeing, yes, the PoEM had to be deferred, I do not think your could really say that the GAAR is never coming. And you have had three of the action plans implemented – one, five and 13. The BEPS action plan.
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