Budget 2015: Arun Jaitley wields scalpel to cut tax disputes

NEW DELHI: With an eye on making it easier to do business in the country and attract tentative foreign investors, finance minister Arun Jaitley has wielded the scalpel to slash the rising instances of tax disputes that have fostered unease and a trust deficit between the government and corporate India.

For starters, the FM has decided to scrap a range of exemptions in the corporate tax regime that have led to litigation and loss of revenue and has proposed to reduce the rate of corporate tax to 25% from 30% over the next four years.

"A regime of exemptions has led to pressure groups, litigation and loss of revenue. It also gives room for avoidable discretion," Jaitley said in the budget speech while proposing announcing the cut in corporate tax. Experts say that over Rs 2,45,000 crore of tax arrears demands are stuck in litigation and disputes. “Maximum disputes arise because of exemptions. We will have to see how things pan out when this becomes applicable," said Vivek Mehra, partner (tax and regulatory services) at PwC India.

To bring down litigation, the Finance Bill proposes that the revenue department not file appeals on a matter of law that’s already being considered and awaiting a decision in the Supreme Court or a High Court.

"Currently, when the revenue department raises a tax demand that goes into the appellate process, there is no system that prevents them from filing fresh appeals over the same issue for subsequent years leading to multiple litigations,” said a senior government official. Besides this, Jaitley addressed disputes arising out of transfer pricing by increasing the threshold for specified domestic transactions to Rs 20 crore from Rs 5 crore.

'Transfer pricing is usually done through advance pricing agreement or mutual agreement procedures, which brings more certainty. With the threshold limit increased, a lot of firms can avoid these disputes," said NC Hegde, partner, Deloitte Haskins & Sells LLP. The finance minister has said that the recommendations of the Tax Administration Reform Commission will be implemented this year.