Budget Analysis: 3% SUV tax is fair amount of burden, says M&M CFO

For tax consultants, tax experts and tax officers in various corporates, the Budget is not done and dusted yet. In an interview to CNBC-TV18 Prashant Deshpande, partner, Deloitte and specialist on indirect taxes, KR Sekar, partner, Deloitte and an expert on international taxes, Sujit Sircar, CFO, iGATE Corporation and VS Parthasarathy, CFO, Mahindra and Mahindra (M&M) share their views on the proposals made in Budget 2013.

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Here is the edited transcript of the interview

Q: Let me start with the issue that is concerning the markets most and definitely India Inc as well, which is the issue of Tax Residency Certificate (TRC) being necessary, but not sufficient. The clarification came in at about 1 pm on Friday that the intent was not to spook investors. Also, the taxman will not go behind the certificate and check out other details of the resident. Do you think that press release amply clarifies your client’s doubts?

Sekar: The first point which I need to put across is the reason for such an amendment in the Act. Because there is an existing circular which has been blessed by the Supreme Court and various rulings, and when the government is very clear that the TRC is sufficient, there is no need for such an amendment.

Q: The press release states that in the previous year’s finance bill which is an explanatory memorandum to the Finance Act 2012, it was stated the TRC containing prescribed particulars is a necessary but not sufficient condition for availing benefits of Double Taxation Avoidance Agreements (DTAA). We are not changing the text, only bringing it into the Finance Act. Does that make it more difficult for you?

Sekar: I appreciate that the press release has come, but I would be very happy because the last paragraph of it also says that it will be taken up while passing the bill for consideration. If it is taken up by passing the bill and the act gets amended accordingly, I would certainly consider it as a more proactive measure, considering there are lot of issues that were raised after the proposal. So it is a welcome measure, but I would prefer to put it in intent.

Q: You want to take a shot at this. Does it concern you at all?

Parthasarathy: I am much less concerned than what I was initially. If the government has stated in no uncertain terms that they will take it into the finance act, I hope they will. I have always learnt to read the fine print before committing on any of this, so I will avoid the final verdict as the finance bill gets passed.

Q: Ashok Leyland was the only stock that went up post the Budget, because obviously the expectation is that the JNNURM bonanza will come to them in the form of some increased orders. Otherwise, how is the auto sector receiving the Budget?

Parthasarathy: The expectation of the auto sector in the Budget was a very passive one. We have done well in the past two to three years. We are struggling a little bit in the last one year. But diesel prices were deregulated, which Pawan Goenka and others have talked about very clearly. So now diesel tax is much less of an issue and we are happy that nothing has come on it. Coming back to SUV tax, clearly 3 percent tax is a fair amount of burden.

While we can argue as to why such a definition is given, it is very specific and sometimes seems contradictory that a safety norm, which should be 170 mm and above, has now become a basis of charging more. What is more - if you take a vehicle like Bolero, this is for the rural market transportation which per seats is a much better vehicle for transportation.

Q: Indirect taxes, any specific irritants that you would want resolved before the bill becomes law?

Deshpande: Yes, certainly. One irritant which has been introduced in this Budget is a limitation on the power of a tribunal to grant a stay till the disposal of the appeal. The law says that the stay by the tribunal cannot exceed 365 days, and if the matter is not decided within that period then the further stay cannot be granted and the demand will have to be paid. We all know that the pendency under tribunals is far in excess of a year and therefore it is unreasonable to expect them to clear all matters within one year of filing. It is much more unreasonable to expect assessee at no fault having to pay duties.

So, I believe this kind of provision which is now followed by a circular which has recently issued by the Central Board of Excise and Customs (CBEC) which has been struck down by at least 5 courts, is very unpalatable to the industry. This should be definitely reconsidered.

Q: It appears that royalties and technical services - which means any software that you would buy – will now become expensive for you. Those increases of duties on royalties and technical services to 25 percent, could that be backbreaking? Could it be extremely game changing?

Sircar: Withholding taxes have gone up from 10 percent to 25 percent and often what happened, especially from the smaller and the medium level customers, was that it used to be passed on to the customers rather than the vendors taking it. But, now it is going up from 10 percent to 25 percent, so definitely there will be a lot of more dispute.

One is that if it is passed on to the customer, the cost will significantly go up and on a technology, or IT industry, it is one of the biggest cost for us. When you have to buy it from the foreign vendors and if you have to have so much of extra cost, it is definitely a huge cost from the IT industry perspective or the vendors, IT companies.