KPMG rates Union Budget 2011 as balanced and forward looking

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Tvm / Kochi: KPMG, one of the Big 4 accounting firms, also having their base in Kerala, organised a series of high level panel discussions on tackling the economic challenges – analysing the Union Budget 2011, in association with the Indus Entrepreneurs (TiE) in Kochi and Trivandrum. The event was well attended by participants including CFOs and Finance heads spanning across the Industry.

Uday Ved and Sachin Menon, two senior personnel heading the tax practice of KPMG spoke on the direct tax and the indirect issues emanating from the Union Budget 2011, respectively. From a direct tax perspective, Uday stated that the revision in the slab rates would proffer increased cash flows for an individual tax payer and thus the monies saved, would be utilized by him to defray the higher costs inter-alia emanating from the new indirect tax proposals (for instance, imposition of service tax on services rendered by certain hotels and private hospitals) coupled with the double digit spiralling inflation.  The reduction in the qualifying age for senior citizens from 65 years to 60 years and the removal of the requirement of salaried tax payers to file their Income Tax Returns subject to the deduction of taxes at source by the employer was also considered as a positive step.

He also expressed that there would be a mixed response from the Corporates towards the budget.  The benefits for the corporate sector includes the reduction in the surcharge from 7.5 percent to 5 percent for domestic companies and from 2.5 percent to 2 percent for foreign Companies and also various investment linked incentives to promote development of infrastructure and research activities through the proposed introduction of infrastructure debt funds and increase in the weighted deduction available for contributions towards scientific research programmes. At the same time the levy of MAT and Dividend Distribution tax for SEZ Developers and SEZ units was considered as a regressive step in the budget. 

The budget also includes certain anti avoidance measures with respect to international transactions including widening the powers of the Transfer Pricing Officer and introduction of strict regulations with respect to transactions entered into with jurisdictions with which India has not entered into an exchange of information sharing agreement to curtail the emergence of a parallel economy. According to him, the thrust area in the present Budget has been on agriculture which would also be beneficial to Kerala’s economy. He also did make it clear that the Government was serious on the introduction of the Direct Taxes Code with effective from 01 April 2012 and thus it was imperative that corporate houses evaluate its impact well in advance.

From an indirect tax perspective, Sachin opined that the Finance Minister has brought out a conservative budget with peripheral changes seeking to achieve the estimated revenue flow of Rs.11,300 crore. From a service tax perspective he highlighted that the levy of Service Tax on services by air conditioned restaurants serving liquor and on hotel accommodation services coupled with the expansion in the coverage of existing services including health services provided by private hospitals and Life Insurance services would definitely prove costly especially for the common man. 

In the area of Customs Duty, Sachin suggested that the implementation of self assessment procedure for assessing the duty liability on import and export of goods was a welcome step.  The rationalization of the exemptions and refunds of tax to SEZs and the expansion in the definition of inputs and input services for the purpose of availing Cenvat Credit was also considered as a welcome move since it would help reduce litigation.  At the same time the relaxation of the restriction of the power of the state government to levy tax on declared goods (like iron and steel etc) from 4 percent to 5 percent would impact the end consumers in all states including Kerala. He also emphasized on the futuristic approach of the budget stating that the Finance Minister by retaining the existing rates of Excise duty and Service Tax together with the removal of central excise exemptions on few products to align the same with the VAT exemptions and the proposed shift from payment to accrual basis for the levy of Service Tax through the introduction of the point of taxation rules, had definitely taken a proactive step taken towards the implementation of GST. He also mentioned that the Point of Taxation Rules has thrown open a Pandora box which could impact a service driven economy like Kerala.

Kerala IT News

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