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8/2/2019 BMRAdvisorspostbudgetwebinaranalysis Budget 2012
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C o p y r
i g h t 2 0 1 2 B M R
A d v i s o r s
In association with Webinar partners
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SIGNIFICANT POLICYANNOUNCEMENTS
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C o p y r
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Macro-economic scenario
Estimated GDP growth of 6.9% (2011-12); expected to grow to 7.6% +/- 0.25%
in 2012-13
Overall deficit expected to decline from 5.9% to 5.1% next year
Inflation (expected) to stabilize
12 th Five Year Plan aims faster, sustainable and more inclusive growth
Legislative amendments proposed to FRBM Act for expenditure management
subsidies to be capped at 2% of GDP
Foreign direct investmentBuild consensus on 51% FDI in multi-brand retail
Proposal to allow 49% FDI in aviation
Silence on Insurance and Defence
SIGNIFICANT POLICY ANNOUNCEMENTS
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C o p y r
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Capital market reforms
QFIs allowed access to the corporate bond market
Broad-basing and incentivising IPO participation
Disinvestment INR 300 billion to be raised through disinvestment
Boost to infrastructure
12 th Plan period investment in infrastructure estimated at USD 1 trillion half
expected from private enterprise
Tax free Government bonds doubled to INR 600 billion for financing
infrastructureConcessional tax withholding of 5% on specified infrastructure borrowings
SIGNIFICANT POLICY ANNOUNCEMENTS
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C o p y r
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Foreign debt (ECB) liberalisation for infrastructure including:
Part financing of rupee debt of existing power projects
Capex on maintenance & operation of toll systems for roads/ highways
Low cost affordable housing
Working capital for airlines capped at USD 1 billion
SIGNIFICANT POLICY ANNOUNCEMENTS
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DIRECT TAX PROPOSALS
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C o p y r
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No change in corporate tax rates
FM to table bill on Direct Taxes Code (DTC) expected to be implemented
from April 2013
Several retrospective amendments to negate court rulings
Some DTC proposals fast forwarded GAAR, APA introduced
Enhanced rigors for domestic Transfer Pricing
Crackdown on tax evaders
KEY CORPORATE TAX PROPOSALS
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C o p y r
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Vodafone ruling Budget rewrites legislation retrospectively
Source rule* redefined from April,1961
capital asset to include management and control rights
Transfer to include parting with or creation of right, notwithstanding that suchtransfer flows from transfer of shares of an offshore entity
Interest/Ownership in offshore entities deemed to be situated in India, if its valuederived substantially from assets located in India
Scope of term through clarified to include by means of, in consequence of, orby reason of
Withholding tax to apply to non-residents; whether or not it has presence inIndia
Validation clause to legitimize recovery of tax on indirect transfers
* Section 9(1) Retrospective amendment
OFFSHORE TRANSFERS DEEMED TAXABLE
Rules of game overhauled far reaching impact oncross-border business restructuring
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C o p y r
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GAAR FAST FORWARDED
Based on DTC Bill without factoring Standing Committee recommendations
Doctrine of substance over form codified to deter aggressive tax planning
Revenue may declare an arrangement as impermissible avoidance arrangementif the main purpose is to obtain tax benefit and the arrangement
creates rights/ obligations not normally created between persons dealing at armslength; or
results in abuse of provisions of tax laws; or
lacks or is deemed to lack commercial substance; or
is carried out in a manner which is normally not employed for bonafide purpose
If GAAR invoked Revenue empowered inter-alia to:
disregard or combine any step in the arrangementlook through the arrangement by disregarding the corporate structure
re-allocate income/ expense, re-characterise equity into debt
treat the place of residence of any party or situs of an asset or transaction otherthan place or location mentioned in the arrangement
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C o p y r
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GAAR FAST FORWARDED
Onus of proof on the taxpayer Contrary to Standing Committeesrecommendations
Limited treaty override for effective application of GAAR in cross bordertransactions
Board to frame guidelines for conditions
Assessment procedure for GAAR Annexure 1
Challenges
Onus to prove commercial substance in holding structure
Planning M&A and business restructuring transactionsObtaining tax benefit key trigger
Round trip financing specifically covered
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C o p y r
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OTHER ANTI-ABUSE PROVISIONS
Share subscription > FMV of shares; excess taxable*
Issue of shares (at premium) to residents in excess of FMV will be treated asincome
Not applicable to investment by Venture Capital Funds
Others
Unexplained cash credits, unaccounted investments** to be taxed atmaximum marginal rate of 30%; no allowance for expenditure
Tax return filing mandatory for residents :Ownership of asset including financial interest outside India
Signing authority in an offshore bank accountSpecial trials for prosecuting tax defaulters
Bar of limitation extended from 6 to 16 years for offshore assets
* Section 56(2)
** Section 68
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C o p y r
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TRANSFER PRICING
Unilateral APAs introduced from July, 2012, in line with DTCFlexibility to use unspecified methods under APALimited clarity on bilateral APADetailed guidelines awaited
Specified domestic transactions covered from April, 2012
Transactions between Indian entities belonging to the same group coveredCompliances at par with international transactions
Definitions altered retrospectively from April, 2001 to expand coverageInternational transaction to include business restructuring, capital financing,guarantees, inter-company receivables/payablesIntangibles to include marketing, human, location, business etc
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INDIRECT TAX PROPOSALS
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C o p y r
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Increase in peak rate of excise duty and service tax from 10 to 12 percent
Lower rates of excise duty have also increased from 5 percent to 6 percent
and from 1 percent to 2 percent, with certain exceptions
No change in the peak rate of customs duty
No change in CST rate
Comprehensive overhaul of the service tax law
Initiative for merging administration and compliance of excise and service
tax steps towards introduction of GST
INDIRECT TAX - OVERVIEW
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C o p y r
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Model draft legislations for Central GST and State GST under preparation
GST Network will be set up as a National Information Utility and will become
operational by August 2012
However a clear time line for GST continues to elude
INDIRECT TAX - OVERVIEW
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C o p y r
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Comprehensive taxation of all service activities
Specific exclusions covered under negative list and exempt list
Existing concepts relating to taxability of various revenue streams,
classification, valuation, rebates & exemptions, exports & imports, credits
scheme would change
Services defined to mean any activity carried out by a person for another
person for consideration
Key exclusions are transfer of title in goods and immovable property; money and
actionable claim transactions
SERVICE TAX
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C o p y r
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Exempted services include health care services and select public
infrastructure
Illustrative list of services which may now be liable to service tax:
Non-compete, right of first refusal
Services by members to unincorporated association of persons
Loyalty programme
Cancellation of contract
Transfer of business
International lease lines
SERVICE TAX
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C o p y r
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Period of limitation increased from 12 months to 18 months
Power for compounding of offences to Central Government proposed
Settlement Commission provisions introduced
Removal of monetary limit for self-adjustment of excess service tax paid
Non-issuance of invoice no longer a trigger for prosecution
SERVICE TAX
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C o p y r
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Pre-identification of destination of sale and VAT registration added as
conditions for ACD exemption on specified products
New category of CBU cars introduced for customs duty purpose with
FOB value of more than USD 40,000 and
engine capacity of 3,000 cc for petrol and 2,500 cc for diesel
BCD rate for such cars increased from 60 percent to 75 percent
Customs duty incentive for MRO exemption to parts and testing
equipments
Duty reductions announced for fertilizer, coal mining, infrastructure & roads
sector
CUSTOMS
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C o p y r
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Large automobiles (of length exceeding 4m) would attract duty on the basis
of engine capacity:
Below 1500 cc Rate hike from 22 percent ad valorem to 24 percent ad valorem
Above 1500 cc Rate hike from 22 percent ad valorem plus INR 15000 per unit
to 27 percent ad valorem
Duty incentive for MRO exemption to parts and testing equipments
EXCISE
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C o p y r
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ACTION STEPS FOR BUSINESSES
Comprehensive overhaul of the service tax law will necessitate relook at
current tax positions
Analyze impact of change in regime for respective businesses
Review planning measures implemented by the businesses
Identify structuring options
Prepare for the changes revised compliance requirements, realignment of
IT systems
Assess the impact of law and examine need for dialogue; obtain clarificationfrom the Government
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BMR TAKE
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BMR TAKE ON BUDGET
Roadmap for cutting deficit
External factors could worsen inflation
Curtailing expenditure on subsidies intent vs outcome
Stringent GAAR & anti-abuse provisions
Retrospective tax amendments impose onerous responsibilityTransfer pricing law strengthened
Paradigm shift in Taxation of Services
Visible roadmap for tax policy reforms (DTC and GST)
Click here for BMR analysis on Budget 2012.
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C o p y r
i g h t 2 0 1 2 B M
R A d v i s o r s
In association with Webinar partners
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C o p y r
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R A d v i s o r s
ANNEXURE 1 (GAAR - ASSESSMENT PROCEDURE)
Tax Officer makes a reference to
Commissioner during assessment
Commissioner makes a reference to the
Approved Panel *
Directions to the Tax Officer to make
adjustments
Tax Officer passes order confirming the
adjustments
Directions to the Tax Officer to drop
GAAR proceedings
Commissioner is not satisfied with taxpayers explanations
Assessee can prefer an appeal before
the Tribunal
Commissioner is satisfied with taxpayers explanations
Approved Panel is satisfied with taxpayers explanations
Approved Panel is not satisfied with taxpayers explanations
Taxpayer has to pay tax
Taxpayer accepts the order passed by the Tax Officer
Taxpayer does not accept the order passed by the Tax Officer
* 3 member collegium of Commissioner or higher ranking Tax officers
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