Direct and indirect tax laws are undergoing changes. The Direct Taxes Code is being overhauled and GST is set to be introduced. The Vodafone tax row once again revealed the dangers of unforeseen problems cropping up. We will make sure the law makers, government and the tax authorities hear your side too.
Litigations involving sums exceeding Rs 70,000 crore are pending at various levels before tax appellate authorities and courts. Multinational companies (MNCs) are wary after a flurry of high-pitch transfer pricing related assessments. MNCs are utilising the advance pricing agreement (APA) to avoid future disputes. An APA between a taxpayer and tax authority determines the transfer pricing formula for pricing the taxpayer’s international transactions in future.
The government is also mulling over the possibility of setting up a formal framework for resolving tax disputes, notably the one with Vodafone, on the lines of the advance pricing agreements used to resolve transfer pricing cases. The Central Board of Direct Taxes is willing to reduce a part of the interest and penalty but the company wants the interest and penalty as well as a part of the principal to be waived off. A panel headed by Parthasarthi Shome, currently an advisor in the finance ministry, had mooted that penalty and interest should not be levied in cases where law had been amended with retrospective effect. But the government may not be ready for conciliation with every taxpayer, unlike in the case of Vodafone.
It is also not necessary that there is always a big levy or announcement. There can also be minor tweaking. The 2013-14 Budget levied a surcharge on the rich whose annual income exceeds Rs 1 crore. Tax burden on companies was also increased. For domestic companies with an annual income of more than Rs 10 crore, the surcharge has been doubled to 10 percent. Foreign companies will now have to pay 5 percent surcharge compared with 2 percent earlier.
There are many other problems when it comes to the tax front. The multiplicity of taxes at the central, state and local government levels add to the woes of the taxpayer. The taxpayer has to meet multiple authorities and keep separate documentations for each. Then there are taxes which are levied on an ad hoc basis for short period of time, for example the Gujarat earthquake surcharge at the start of the millennium. The complexity of the direct and indirect tax laws leaves them open to differing interpretations and often results in litigation between the authorities and payers. Tax evasion and corruption are also by-products of this. The federal structure often leads to a tug of war such as the one on GST between the centre and the states. The taxpayer often gets squeezed. The tax regime can be taxing and unpredictable.
(Disclaimer: The information has been aggregated through secondary research. IFIE is not responsible for errors if any)