Need bold steps, remove surcharge completely, says Sudhir Kapadia

With a fiscal deficit of 6.8%, the need for revenues is understandable. Still, the abolition of corporate surcharge of 10% would have been bolder and more desirable, compared to a reduction in surcharge to 7.5%, bringing the corporate tax rate down marginally from 33.99% to 33.22%.

A better option to bridge the revenue gap would have been to increase the short-term capital gains tax rate for listed securities to 30% from the existing 15%. Most countries around the world do not tax short-term capital gains.

Hiking the MAT rate to 18% from the existing 15% is undesirable, especially as small companies too bear the burden. The US is perhaps the only developed jurisdiction which has a similar regime, but it exempts small companies. The Finance Bill proposes to tax transfer of shares of unlisted companies to firms or other unlisted companies at prices below their fair market value. However, valuation may be a contentious issue during assessment.

As of now, it appears, genuine business structuring will not be impacted. The risk of exposure to Indian taxes increases for foreign companies. Through an amendment, which will come with retrospective effect from June 1, 1976, the government proposes to bring into the tax ambit income earned by non-residents from royalty, interest or fee for technical services, even if the services are rendered outside India or if there is no place of business or business connection in India.

The government had earlier tried to overturn a Supreme Court ruling in the case of Ishikawajima-Harima by introducing an explanation in tax laws, but the ruling continued to be relied on.

(Sudhir Kapadia is Tax market leader, Ernst & Young)