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FM Nirmala Sitharaman vows to ease India Inc’s tax burden, CSR worries - GST Station

FM Nirmala Sitharaman vows to ease India Inc’s tax burden, CSR worries

FM Nirmala Sitharaman vows to ease India Inc’s tax burden, CSR worries

    The minister asserted that the government would consider a uniform 25% tax rate for all companies once there was comfort that tax revenues were on a high-growth trajectory.

    Foreign portfolio investors (FPIs) and key financial sector participants on Friday met finance minister Nirmala Sitharaman and sought a rollback of the higher surcharge on FPIs structured as trusts or at least ring-fence them from such an impost, which has spooked the stock markets.

    They also urged the finance minister to review the dividend distribution tax, scrap the long-term capital gains (LTCG) tax and offer a predictable taxation regime for at least five years. “The minister didn’t promise to roll back surcharge on the super-rich but she was very receptive to ideas, not just on the surcharge but all issues relating to taxation and ease of investment,” a participant told FE.

    Separately, speaking at a CII event, Sitharaman said she would travel around the country to gather feedback through first-hand account of any tax-related harassment of companies, seeking to allay fears of abuse of power by the overzealous taxman. She also promised to review the new corporate social responsibility (CSR) rules that provide for a jail term up to three years for non-compliance.

    The minister asserted that the government would consider a uniform 25% tax rate for all companies once there was comfort that tax revenues were on a high-growth trajectory.

    “At no point and on no score, do we want to make it difficult for industry,” she said at the CII event. The government has, over the last five years, trimmed the corporate tax rate to 25% from 30% in a phased manner for 99.3% of companies. However, the remaining 0.7% large companies that make up for almost 80% of the total corporate tax collection are yet to get the benefit of the lower rate.

    In the Budget last year, the long-term capital gains (LTCG) tax was introduced at 10% on proceeds in excess on Rs 1 lakh without indexation. This is applicable on equity-oriented instruments. The effective dividend distribution tax is 17.65%.

    On the impending report by the task force on the Direct Tax Code, Sitharaman said that the government will immediately take the recommendations for consideration without delay. She also said that the government would expedite the release of any pending payments, including GST refunds, to MSMEs.

    In their meeting with the minister later in the day, financial sector stakeholders also pitched for widening the scope of investment of EPFO funds and simpler KYC rules to be adopted by capital market institutions. The crisis in the shadow-banking sector found mention as well, with some participants pushing for a clear-cut resolution plan for the NBFC crisis. Top executives of dozens of companies like Goldman Sachs, Nomura, Deutsche Bank, Blackrock, Satndard Chartered, HSBC, Barclays and CLSA attended the meeting on the FPI issues. Separately, Uday Kotak, MD of Kotak Mahindra Bank, Rashesh Shah, chief executive of Edelweiss Group, NSE chief Vikram Limaye, BSE MD Ashish Chauhan were among those who met Sitharaman separately in another meeting.

    As for the relief to the FPIs, one option could be a one-time capital gains tax waiver for such FPIs wanting to convert. Replying to discussions on the Finance Bill 2019 in Parliament on July 9, finance minister Nirmala Sitharaman had declined to remove or relax the applicability of the new super-rich surcharge on FPIs, but advised those staring at an increase in tax outflows to shift to the corporate structure where the Budget hasn’t made any change in tax treatment. However, the minister had agreed to hear suggestions from the FPIs.

    With the surcharge on categories of taxpayers with income above Rs 5 crore rising by 22 percentage points, long-term capital gains tax on FPIs using the trust structure would now be 14.25%, against 12% earlier, while short-term gains would rise to 21.4% from 17.9%.

    FPIs, including pension and retirement funds, educational endowment fund, etc, come in through the trusts route because it has been the most tax-efficient structure. Typically, a corporate fund would have to pay MAT at over 18.5% and an additional 20% as dividend distribution tax.

    Source- Financial Express.

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