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India must repeal outdated laws to be in sync with business realities |
"The view is nice from here," tweeted Isro's Mars Orbiter. Perhaps it isn't so for many business entities in India who are waiting for a better picture to emerge. We are contemplating floating hotels on the Ganga. And yet, an antiquated law, the Ganges Toll Act, 1857, exists. It requires boats to cough up '12 annas' as toll fees for a certain distance. The government is keen to repeal several such outdated laws. It's a good move, but it is more crucial for Acts, amendments or clarifications, which currently impact India Inc, to be in sync with business realities.
Let's look at the state of affairs for business units in the special economic zones (SEZs). Units operating from SEZs are granted a graded 15-year tax holiday. To claim it, the new SEZ unit should not have been formed by splitting up or by the reconstruction of a business already in existence.
Further, it should not have been formed by the transfer of old plant and machinery to the new business in excess of 20 per cent in value. The commerce ministry, having understood the crucial role played by human capital, employees, in the IT and ITeS sector had, in November 2010, clarified that there was no bar on transfer of existing employees to a new SEZ unit.
Out of the blue, in July this year, the Central Board of Direct Taxes (CBDT) capped the percentage of employees that could be transferred to a new SEZ unit. Now, last week, as a conciliatory measure, the percentage limit of employees that can be transferred to a new SEZ unit in its first year of operations has been revised from 20 per cent to 50 per cent.
The manpower ratio, the number of existing technical employees transferred in relation to the total manpower engaged in software development in the new SEZ unit, will be computed at the end of the fiscal. There's another option that computes the manpower ratio of technical employees in the new SEZ unit with the total number of new technical employees hired across the company.
However, some in the IT industry aren't appeased. "New employees will need to be hired either in the new SEZ unit, or across the company," said one. "It's now a job-linked tax sop, which wasn't the case earlier." A few countries do provide tax sops for employment generation. But it is the back-door, sudden and unexpected entry of such arequirement that is unpalatable.
Amazon has announced an investment of $2 billion in its India business and Amazon founder-CEO Jeff Bezos is gung-ho about a rosy future in India. His operational staff may not share his sentiments.
As FDI isn't permitted in online retail, many e-retailers, including Amazon, function as online marketplaces.
They procure goods from vendors and stock them at their own warehouses. Karnataka's value-added tax (VAT) authorities have raised demands on e-retailers against these stored goods, even as vendors were already paying the tax on their transactions.
Vendors have also been told they cannot register the e-retailer's warehouses as their 'additional place of business'. Logistic service providers, such as courier services, catering to the eretail sector haven't been spared either. Under Kerala's tax laws, as they supply goods and collect cash from the end customer, even though such cash is duly remitted back to the vendors, the logistic service providers are 'dealers' subject to VAT. A few other states have also followed suit.
As on March 31, Alternative Investment Funds (AIFs) had invested Rs. 3,348 crore in India and had committed to raising Rs. 13,465 crore. A few months later, the CBDT decided that if the AIF investors' names and their beneficial interest aren't disclosed upfront in the trust deed, the tax pass-through benefit will be denied. A maximum marginal tax rate of nearly 34 per cent will be levied at the fund level. Owing to practical realities of fund-raising, the details aren't contained in most trust-deeds.
Asset managers now fear that the entire income of the fund, including capital gains, which get favourable tax treatment, could be treated as 'business income' by taxmen and subjected to the highest tax rate. Why, even the much-awaited scheme to end the inspector raj hasn't fully taken off, according to many businessmen.
Source : economictimes.indiatimes.com
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