‘Tax Outlook - 2020’ is an exclusive segment for this edition of Tax Street that captures views of eminent experts from Taxation on the future of tax in India. This is intended to help widen our reader’s knowledge and exposure and put forth a holistic picture. The leaders who have contributed to this segment are –

The leaders who have contributed to this segment are –

Hiral Raja

Hiral Raja
General Manager
Taxation,
Asian Paints

Kavita Gandhi

Kavita Gandhi
AVP
Finance and Taxation,
Eureka Forbes Limited

Renu Narvekar

Renu Narvekar
Global Head
Taxation,
Tata Consultancy Services

What’s your outlook for tax policy (direct and indirect) in India for 2020? What do you think is in store for us in 2020?

Renu Narvekar: Any tax policy should provide a long term vision specifying a roadmap for the corporate tax rates and GST rates for the next 5 years, giving certainty to taxpayers to plan their businesses from a long term perspective.

Tax Policy should be tax payer friendly. The existing tax provisions need to be simplified and trust built in order for the tax payers & the tax department to work in partnership.

2. What are the three key changes/reforms on the tax (direct and indirect) side that you would like the Government to bring about in 2020?

Hiral Raja: Removal of Dividend distribution tax, Stabilization of GST and driving simplicity on GST compliances and Bringing Fuel into GST net.

RN:

  1. Tax Holiday should be extended.
  2. Personal income tax rates should be rationalized to boost the economy by creating demand.
  3. More clarity on Significant Economic Presence (SEP) Provisions.
  4. Taxpayers should be classified as most reliable, reliable & average based on previous assessment records to avoid any undue hardships to the honest tax payers.

3. Do you feel that the e-assessment and faceless assessment framework is going to succeed? Are there any missing elements in it?

HR: E-assessment and faceless assessment framework is a very good initiative. Its as cultural shift for both the tax authorities as well as taxpayers. In the initial phase, there would be lot of challenges and as a Country we will have to go through the learning curve before this stabilizes.

RN: Yes to a certain extent it will succeed. However there are limitations for large tax payers wherein personal meetings are unavoidable.

4. What is your opinion on the changes made in Corporate Tax in 2019? Do you now feel that the Indian Corporate Tax rate is competitive with Asian and Global peers?

RN: In my view, it is a positive and welcome move resulting in a relief to the corporate sector.

Yes, the rates are competitive with Asian as well as global peers. Recent years have seen many countries convene around a rate “corridor” of (roughly) 19% to 25%. It is possible that this corridor may move lower in the future. Headline tax rates are b ut one element of tax competition though, and their fall is often accompanied by corresponding tax base expansion.

HR: Reduction in the tax rate has been a very positive step. Indian Corporate Tax rate has now become competitive with the Asian Global peers and puts India on competitive edge to boost investments.

5. Do you feel that there are still tax factors (policyor administration-related) that are hindering the flow of FDI in India? Can you list some such aspects?

RN: Yes, there are many tax factors which potentially hinder the FDI inflow. Some of these include:

  1. Retrospective changes in the legislation
  2. Tax Department’s suspicion towards every taxpayer’s integrity
  3. Personal behavior of the tax officers with the assessee
  4. Extremely slow and time consuming process in resolving tax disputes

The Indian tax authority is viewed as “generally aggressive with taxpayers, applying highly subjective and/or retroactive interpretations or threatening/using criminal sanctions.”

6. What are the three critical areas on the tax front that corporates should pay attention to in 2020?

RN:

  1. The GAAR Provisions
  2. Taxation of Digital Economy (Proposed Pillar 1 & 2)
  3. Exchange of Information

HR: Digitization and automation for ecosystem of indirect tax compliances (including usage of RPA, AI, etc). And Identification of opportunities/risks based on usage of additional key data points received from GST portal for analyzing the financial health as well as compliance of business partners (dealers, vendors, etc.)

7. How do you see the litigation environment shaping up in 2020? Is it on a declining trend, or do you see it increasing (especially with BEPS measures)?

RN: The litigation environment in India seems to be improving, however, there is still a need of giving freedom to the first level Assessing Officer (AO) in respect of assessment decisions. Quite often, a mechanical approach is followed, wherein unnecessary adjustments are made ignoring the actual facts of the case, judicial pronouncements, etc.

As far as quantum of litigations is concerned it will be incorrect to say that litigations is on a declining trend. On the contrary due to BEPS measures (since the intent of the same is to capture double non-taxation) there is a likelihood of increased litigation globally. Whilst countries around the world have lined up to pledge their support for the international efforts to close corporate tax loopholes, despite the noble intentions of the BEPS initiative, its spotlight on tax avoidance has already given tax authorities around the world a platform for aggressive investigations into the tax strategies of some of the world’s largest corporations. For example, France got the ball rolling with a demand that Google pay USD 1.8 billion in what it alleged were unpaid taxes. European Parliament has also seized the opportunity to launch a highly visible investigation into Ikea,/accusing the home furnishings giant of dodging up to USD 1.1 billion in taxes between 2009 and 2014 by shifting profits through a subsidiary in the Netherlands. Apple and McDonald’s have also caught the eye of EU lawmakers, and faced off with the European Parliament’s tax committee. Corporations are already paying the price in the form of costly investigations, audits, and conflict resolutions.

HR: Litigation environment is on a declining trend. Majority of tax issues have stabilized. On the indirect tax front, Sabka Vikas Legacy Dispute resolution has been a very good move and it will put large amount of disputes on back burner whilst allowing the government as well as the companies to concentrate on a lot of new areas rather than carrying the baggage of past litigations.

8. How do you see the tax environment shaping up globally? Would unilateral measures create more challenges and incidents of double taxation?

RN: Ever since the OECD unveiled its 2015 BEPS recommendations for international tax changes, we have been living through a period of great legislative flux. Worldwide, we see more tax legislative change playing out than ever before. Companies need to be compliant with new tax laws, which means that the more global the company’s footprint, the more tax law change the company faces. Today, the global tax environment is arguably more dynamic — and challenging — than it has ever been, with change present or promised in most places in the world.

We have seen a proliferation of unilateral measures globally. These include diverted profit taxes (DPTs) in a number of jurisdictions; the base erosion and anti-abuse tax (BEAT) and Global Intangible Low-Taxed Income (GILTI) measures within the US tax reform package; digital services taxes (DSTs) both multilaterally in the EU and unilaterally in a number of jurisdictions; new digital permanent establishment (PE) concepts; differing interpretations of key transfer pricing concepts; and, of course, differing applications of BEPS recommendations — ironically adding to disparities in international tax systems, being the very problem the BEPS project itself was trying to solve. If anything, the pace of countries moving forward with such measures has increased as the OECD’s own work has progressed, suggesting an increasing number of countries are now no longer willing to wait for a global solution, despite an ambitious timeline by the OECD. The introduction of such revenue based taxes is economically distortive and gives rise to double taxation and significant administration not only at the taxpayer level but also for tax authorities.

HR: Globally tax environment is becoming more and more complex. Unilateral measures would increase the risk of double taxation and would cause certain hiccups in the smooth working of MNCs.

9. In your view, how do you see India’s current transfer pricing regime? Do you see more challenges on the transfer pricing side (especially with Master file and CbCr disclosures)?

RN: Transfer pricing is an area of BEPS where much implementation activity has already occurred, but is not yet complete

Transfer pricing is not the measure with the highest incidence of burden-increasing measures, however — new digital taxes, higher levels of tax enforcement, changes to CFC regimes and interest limitation changes all demonstrate a higher incidence of change. But that does not mean that transfer pricing risks are slowing; infact the opposite is true. What continues to be a concern, however, is the continued unilateral action, inconsistent interpretation, and application of the transfer pricing standard.

With Master File and CbCR tax authorities are well positioned with more information on a MNE group enabling them to draw comparisons in respect of contribution of various entities in the overall value chain, MNE Group profit, revenue allocation across jurisdiction, contribution to value creation, etc.

All things considered, tax authorities will have more information about taxpayers than they have ever had before. Together, this also adds up to a recipe for further controversy and for a fresh rise in reputation risk, as revenue authorities juggle huge volumes of data, new analytics solutions, and ongoing public and political demand for aggressive treatment of taxpayers.

The main challenges of disclosure of data in the Master File & CbCR are:

Confidentiality of data – Our biggest concern is in relation to the confidentiality and protection of our data. The CbCR and Master file together are a blue print of the operations of the MNE Group and the availability of the same to competitors can have an adverse impact on our business and existing market share (e.g. Leakage of our way of doing business, information about our value drivers, our strategic global operations).

Difference of interpretation – The CbCR and master file provide large amount of quantitative and qualitative data to tax authorities, which may be interpreted in different ways by different tax authorities. Such difference in interpretation may call for change in pricing arrangements by different jurisdictions as per their interpretation and if followed may lead to inconsistency in the MNE group’s global pricing policies.

HR: India’s current transfer pricing regime has matured post passing through a learning phase as well as a phase of heavy litigations.

10. With the GST regime almost 900 days old, what are the major issues/hassles which still need to be ironed out by the government?

Kavita Gandhi: Rationalizsing the GST rate structure and convergence of the tax rates into fewer slabs. GST rates on health and & hygiene products such as water/air purifiers, vacuum cleaners can be slashed to 12% to spur consumer demand and promote the ‘Swatcha Bharat’ initiative.

RN: The major issues are

  1. Delay in getting the export refunds
  2. Invoice level matching of inputs
  3. Frequent changes in law and systems.

HR:

  1. Frequent changes have caused much instability
  2. Adequate testing of the GSTN portal, E-way bill portal needs to be carried out before any new compliances are proposed. Also implementation of compliances can be carried out in a phase for various types of taxpayers i.e. the way in which - invoicing implementation is planned.
  3. GSTR2A reconciliation needs to be kept on hold till the GST law is settled and compliances are stabilized.

11. Has your business faced any significant challenges in complying with the recently introduced restriction on the availment of ITC not appearing in GSTR-2A?

KG: Rule 36(4) amendment to restrict ITC eligibility (for non-uploaded invoices) to 10% of uploaded invoices by supplier should be done away with as it puts burden on cash flows of registered persons dealing with quarterly filers (who are SMEs mostly). Institutional buyers may not prefer dealing with quarterly filers and this may encourage cash dealings to an extent.

RN: Yes, it’s been a very challenging exercise monitoring that the availment of inputs does not pass over 110% of the matched input credits. In the first month it may look easy, however this tends to get more complicated in the following months.

12. With the government’s GST revenues not meeting budget estimates, what are your top three suggestions, that can help the government increase revenues (without affecting trade adversely)?

RN:

  1. Budget estimates should be based on solid facts and figures
  2. Simplification of compliances,
  3. AI and Aata Analytics based audits of the defaulting taxpayers

13. Do you feel that the implementation of e-invoicing and the new GST return filing system will reduce the compliance burden on your business?

KG: Nuances involved in specific business need to be taken into account before introducing big changes like new GST returns and e-invoicing. The current ‘one size fits' all solution may not be feasible. For instance, the issue of incentive based credit notes to distributors/ dealers on real time basis on e-invoice portal may not be practical in a mercantile accounting method and leads to an unproductive work of turnover reconciliation between books of accounts and GST records for the period.

While reconciliation is at heart of GST, considering the experience since the date of implementation, the new returns may start off with ‘vendor level’ reconciliation instead of ‘invoice level’ reconciliation till the entire ecosystem is in sync with the practice.

RN: In the short run, the mandatory e-invoicing for certain class of taxpayers and the new GST return filing system will definitely increase the compliance burden on the business. However, in the long run, when e-invoicing is made mandatory for all taxpayers, it should ideally reduce the burden to the extent of abolition of e-way bills.

HR: While there would be initial hiccups, however if implemented properly with adequate automation and digitization, it would reduce the compliance burden on the businesses.