“Tax reforms would be incomplete without the reform of direct tax legislation”

Kapil Nayyar, Partner, International Business Advisor talks on tax reforms and other issues that concern Indian economy.

Q.The contribution of direct taxes in the total tax collection in 2016-17 fell below 50 per cent to 49.66 per cent for the first time since 2006-07. This is despite a 15 per cent growth witnessed in the direct tax collection during the year. Why is this so?
Kapil Nayyar: You would have to see it from a macro perspective. The direct tax collection contribution has increased in absolute terms however it has reduced in proportion to the indirect tax contribution. This is primarily due to the increase in indirect tax contribution. In the year 2016-2017, service tax rate increased to 15 per cent from 12.36 per cent and also the excise duty on petrol and diesel increased multiple times.      
Q: In January though, it was reported the direct tax collections jumped by 18.2 per cent during the first nine months of current fiscal at Rs 6.56 lakh crore. What led to this jump?
KN: Demonetisation can be one of the major contributors to such increase. The return filing base has increased which has led not only to the increase in direct tax collection but also the collection of advance tax.
Q: It is expected that the Finance Minister may announce the broad contours of the direct tax overhaul plan in the Budget, though the task force on tax reforms will submit its report in May. What necessitated this overhaul? What is the industry expecting?
KN: With the recent overhauling of indirect tax legislation, the tax reforms would be incomplete without the reform of Direct tax legislation. Also, India’s taxation regime is very complex as compared to other developed nation. Thus, to sync with the international tax practices and to implement some of the best tax practices this reform is the need of the hour.  
Q: How have the provisions like General Anti-Avoidance Rule (GAAR) and Place of Effective Management (PoEM) impacted direct taxation?
KN:The companies are now becoming more and more tax compliant as a result of these tax reforms. The transactions are now more authentic and legitimate and foreign investors are also restructuring their transactions to ensure that they are complying these tax reforms. 
About the author:
Kapil is one of the Partners at International Business Advisors (IBA). In addition to heading the Domestic and International Tax practice at IBA, he also manages the accounting and outsourcing divisions of the organization. He is a Chartered Accountant and Lawyer by profession, with over 14 years of professional experience. He holds vast experience in business valuations and negotiations and has been actively involved in providing consultations to various foreign and domestic companies across various sectors. An alumnus of Deloitte Haskins & Sells, he has also helped in tax structuring of various companies intending to enter the Indian shores.

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