Union Budget 2012: KPMG analyses navigating economic challenges

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Tvm: KPMG in association with the Confederation of Indian Industry (CII) and Asian School of Business (ASB) held a Post Budget Analysis session in Trivandrum on March 19, 2012. The tax specialists from KPMG – Sachin Menon, Partner & All India Head – Indirect Tax, and Srinath S, Director – Indirect Tax made detailed presentations on the economic aspects of the Union Budget 2012 and the key direct and indirect tax proposals, regulatory amendments and policy announcements for the year 2012-13.

Sachin started the session by taking the audience through the current economic scenario and the recent happenings with respect to taxation in India. He also touched upon the wide ramifications brought in by the budget with an intent to neutralize various judgments of the courts including the Vodafone decision. He stated that this trend followed by the Government of nullifying judicial pronouncements by way of retrospective amendments creates uncertainty thereby making India an uncomfortable jurisdiction for foreign investment apart from creating equal uncertainty among the Indian industry at large.

With regard to the Direct Taxes, the speakers cited that the proposals seem pleasantly benign with a token widening of personal tax rates for individuals. Corporates are spared any tax hikes, are bestowed tax sops to borrow overseas and are given relief from cascading Dividend Distribution Tax in a multi-tier structure. Additionally weighted deductions for specified businesses and extension of the sunset clause for the power sector are also proposed. The removal of the list of permitted sectors for investments by Venture Capital Funds is a welcome move. However, Alternate Minimum Tax at 18.5 percent is extended to all non-company taxpayers claiming profit linked deductions. He also pointed out that the Finance Bill seeks to retrospectively overcome many judicial decisions, notably the Supreme Court decision with regard to Vodafone and seeks to tax offshore transfers of shares or interest in a company outside India, if its value is derived substantially from assets located in India. The proposal of General Anti Avoidance Rules (GAAR) and the announcement of the Advance Pricing Agreement (APA) regime were also discussed.

On the Indirect Taxes front, Srinath discussed the fate of implementation of Goods and Services Tax (GST), the increase in the rates of Excise duty and Service tax rates. He went on to elucidate the proposed implementation of a Negative List regime under the Service tax, which would have wide ramifications on the industry. 

The presentation was followed by a panel discussion attended by V K Mathews, Executive Chairman, IBS Group and C Padmakumar, Executive Chairman, Terumo Penpol along with the KPMG tax team. The impact of the budget on the growth of the economy was one of the engaging points of discussion. The participants of the session also had the opportunity to address their queries to the panel members. The questions varied from the tax savings from the perspective of an individual tax payer to the impact of the budget on the IT sector. The event was widely attended by the professionals from the industry.

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