MoF demolishes Parekh sop shelter

NEW DELHI: India Inc’s hopes of getting tax sops on the strength of Deepak Parekh committee’s recommendations have been dashed. The revenue department has said no to imposition of securities transaction tax (STT) — instead of capital gains — on unlisted securities, exemption from withholding tax on interest paid on overseas borrowings, scrapping of dividend distribution tax (DDT) and tax breaks for companies investing in ultra mega power projects. The department has virtually rejected almost all the suggestions of the panel with regard to relaxation of taxes.

The department is of the opinion the present tax structure with regard to withholding tax and DDT was a simple and efficient way of tax collection. “Giving an exemption on this account would have revenue implications. At a time when the emphasis is on removing tax exemptions, there is no reason to give new ones,” a government source told ET.

Moreover, even if the withholding tax — ranging from 10% to 15% depending on the tax treaty with the lender’s country — was removed, it would not translate into cheaper funds for domestic borrowers. Also, credit could be availed against the withholding tax paid, the source added.

On the taxation of dividends, the revenue department has always favoured collecting it at the hands of the distributor as it was a cost-effective and efficient way of tax collection.

The department has also found unacceptable the committee’s suggestion on replacing capital gains tax on transactions in unlisted equity shares with STT. STT — imposed at the rate of 0.1% — cannot replace capital gains tax imposed at the rate of 30% on short-term gains and 20% on long-term ones.

Similarly, the suggestion to provide tax rebate to equity investors in ultra mega power projects has failed to cut ice with the department as it has already provided for a 10-year tax holiday for power projects.

The Parekh committee was set up by the finance ministry in February to suggest ways and means to boost infrastructure financing in the country. It has pegged funding requirement for country’s infrastructure development for five years at $4.5 billion.