In order to soothe nerves of foreign investors, the government today offered one-time settlement of cases emanating from retrospective amendment of tax laws, by asking companies to pay the basic tax demand and get waiver for interest and penalty.
To provide a stable and predictable taxation regime, Finance Minister Arun Jaitley in Budget 2016-17 came out with a ‘Direct Tax Dispute Resolution Scheme’ to resolve cases pending in any Court, Tribunal, Arbitration or mediation under the Bilateral Investment Protection Agreement (BIPA).
Experts said this is a big step towards tax reform and will act as a breather for companies like Vodafone and Cairn, which have been facing multi-billion dollar tax liability following retrospective tax amendments made in 2012.
“In order to give an opportunity to the past cases, which are ongoing under the retrospective amendment, I propose ‘One Time’ scheme of dispute resolution for them in which subject to their agreeing to withdraw any pending case lying in any Court or tribunal or any proceeding for arbitration, mediation, etc under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived,” Jaitley said in his Budget speech.
He today also reiterated that the government will “provide a stable and predictable taxation regime. We will not resort to such (retrospective) amendments in future”.
“I had also hoped then that the cases pending in various courts and other legal fora relating to certain retrospective amendments undertaken to the Income Tax Act, 1961, through the Finance Act 2012, will soon reach their logical conclusion. I would like to reiterate that we are committed to provide a stable and predictable taxation regime,” he said.
The government had in 2014 Budget announced constitution of a high-level committee, which would oversee any fresh case where the Assessing Officer proposes to assess or reassess the income in respect of indirect transfers by applying the retrospective amendment.
“In order to allay any fears of tax adventurism, this committee will now be chaired by the Revenue secretary and consist of Chairman CBDT and an expert from outside. This committee will effectively oversee the implementation of the assurances,” Jaitley added.
Jaitley said the tax department is moving towards a lower tax regime with non-litigious approach. Thus, while compliant taxpayers can expect a supportive interface with the department, tax evasion will be countered strongly.
He said there are about 3 lakh tax cases pending with the first Appellate Authority with disputed amount being Rs 5.5 lakh crore.
“Litigation is a scourge for a tax friendly regime and creates an environment of distrust in addition to increasing the compliance cost of the tax payers and administrative cost for the government,” Jaitley said.
A taxpayer who has an appeal pending as of on Monday before the Commissioner (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment.
“No penalty in respect of I-T cases with disputed tax up to Rs 10 lakh will be levied. Cases with disputed tax exceeding Rs 10 lakh will be subjected to only 25 per cent of the minimum of the imposable penalty for both direct and indirect taxes,” he said.
Jaitley said any pending appeal against a penalty order can also be settled by paying 25 per cent of the minimum of the imposable penalty.
However, persons charged with criminal offences under specific Acts are barred from availing this scheme.
The new Dispute Resolution Scheme (DRS) is intended towards solving the long pending tax disputes with MNCs and create favourable investment climate, experts said.
“Retrospective amendments not to be made going forward and special regime to settle past disputes on indirect transfer tax, showcases Government’s commitment towards creating a stable and predictable tax regime in India,” said Naveen Aggarwal, Partner (Tax) KPMG in India.
Earlier this month, the tax department took the unusual step of sending a reminder notice to Vodafone for payment of Rs 14,200 crore of taxes on an issue that is under arbitration.
Even after two years, the arbitration in the Vodafone case has not yet started in absence of appointment of a presiding judge on a three member arbitration panel.
The Rs 10,247-crore tax issue of Cairn Energy Plc, UK could manage to get a full panel constituted, even though the process started much later than Vodafone, only after the issue was brought to the notice of Prime Minister’s Office.