Goods and Services Tax 2015

While baby steps have begun to reduce the litigations, most of the tax issues facing foreign investors were put to rest in 2015, which also saw the ambitious Goods and Services Tax (GST) bill remaining in limbo due to political slug fest.

Efforts were also made on the BJP's poll promise of cracking down heavily on black money, but the initial response was no more than lukewarm when compared to the astonishing numbers that have been doing the rounds about the undeclared wealth stashed by Indians within and outside the country.

Vodafone and Cairn energy faces taxation problems

Overhang of some legacy issues, particularly the retrospective taxation facing big foreign players like Vodafone and Cairn Energy, continued although attempts were made to resolve these long-pending issues.

Government began conciliatory proceedings in the Rs 20,000 crore tax dispute with Vodafone while Cairn took the government to international court of justice to get an arbitration going in the Rs 10,247 crore tax notice. Both the cases appear set for a long-haul.

To its credit, the tax department tried to simplify some of the processes like giving immediate refund for amounts below Rs 50,000 and deciding to withdraw low-value appeals.

Swachh Bharat campaign funded by levying taxes

A levy of a 0.5 percent cess on taxable services was introduced to fund the Prime Minister's ambitious Swachh Bharat campaign was introduced.

"We are absolutely confident of meeting the target of indirect tax collection and we are hopeful of reaching as close to the target in direct taxes as possible. But we would not like to achieve target by mandatorily asking some big companies to pay extra advance tax in the current year or by stopping refunds," Revenue Secretary Hasmukh Adhia said.

Summing up the year, Adhia said the thrust of the reform of tax department is to have non-adversarial, non-intrusive, and still an effective, system of tax collection.

Applicability of Minimum Alternate Tax (MAT)

One of the major issues that faced the tax department in 2015 remained a huge controversy over applicability of MAT (Minimum Alternate Tax) on capital gains made by the foreign
portfolio investors/foreign institutional investors for period prior to April 1.

The issues spooked the markets with FIIs threatening to pull out, but the government managed to salvage the situation through a committee under law commission chairman A P Shah which recommended non applicability of MAT for previous years.

Introduction of foreign Black money law

Government's thrust on bringing back black money gained traction with introduction of a new foreign black money law which provides for a steep penalty and tax of 120 percent and jail term of up to 10 years.

A one-time 90-day compliance window was given to those with undeclared assets to come clean. However, the window saw only Rs 4,160 crore being declared which would yield just about Rs 2,500 crore in taxes and penalties.

But this still remained a far cry from what was being touted about the extent of black money in the system, with some unofficial estimates putting it as high as USD 500

'Project Insight' that will monitor high value transactions with a view to curbing the circulation of black money will begin from next year to widen and deepen tax base.

Issue of Goods and Services Tax

On indirect taxes, Government hopes of getting the GST law approved soon so as to help accelerate GDP by 1.5-2 percent.

Hopes were dashed on this front this year after the Congress stalled passage of the bill in Rajya Sabha for two consecutive sessions over its three demands - a low GST rate of 18 percent, no additional one percent tax on inter-state movement of goods and the GST rate being put in the Constitution Amendment Bill.

Finance Minister Arun Jaitley opposed all the three conditions for months but appeared to be relenting when a panel headed by his Chief Economic Advisor suggested no more than 18 percent GST rate, except for 'sin' goods, and scrapping of proposal to give states powers to levy 1 percent additional tax.

As a result, the GST rollout date of April 1, 2016 appears almost impossible to meet now.

Steps taken to reduce litigations

On steps to reduce litigations, Adhia said the major cause of large-scale litigations is various exemptions and deductions given under the existing income tax law.

"We have already announced a roadmap for phasing out of such incentives over a period. When such exemptions are removed and tax law is simplified, the litigations would come down further," he said.

Besides, the tax department has put in place a mechanism for giving immediate refund in cases where the refund amount is below Rs 50,000 and withdraw low-value appeals in which tax effect is less than Rs 10 lakh and Rs 20 lakh from ITAT and High Courts respectively.

Steps taken to curb circulation of Black money

To curb circulation of black money, quoting of PAN has been made mandatory for cash and card transactions of Rs 2 lakh except for hotel bills and air travel where the limit was
set at Rs 50,000.

During April-November, direct taxes which include income tax and corporate tax, grew 12.63 percent to Rs 3.69 lakh crore. This is 46.26 percent of the budgeted target of Rs 7.97 lakh crore.

Indirect tax collection jumped 34.3 percent to over Rs 4.38 lakh crore during April-November period. Thus, achieving 68 percent of the Budget estimates of Rs 6.46 lakh crore for full fiscal.

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