By IANS,
New Delhi: An industry body Saturday urged the government to remove some provisions in the Direct Tax Code draft, especially those taxing capital gains arising on indirect transfer of Indian assets.
“This can have serious implications in various international transactions like cross-border mergers and transfer of Indian shares in foreign capital markets,” the Associated Chambers of Commerce and Industry of India (Assocham) said in a statement.
Also, in a representation submitted to the finance ministry, Assocham said other issues like ‘grandfathering provisions’ have also not been introduced for all deductions and exemptions existing under the current laws, like for life insurance schemes, PPF, pensions and superannuation funds.
“Provision for grandfathering in the area of tax incentives for special businesses like power and infrastructure is actually not effectively available because it is restricted to expenditure deductions, although it was provided for in the current tax laws,” it said, adding the “huge uncertainty” in Indian tax laws could affect future investments.
Assocham noted the the provision was introduced in countries like Argentina and Nicaragua, as in fact, there was a compulsion for it due to hyper-inflation of over 400 percent requiring an alternative method of taxation.
“Even then, the companies were given the option to pay tax linked to assets or profits, whichever was lower,” it added.
Assocham also contended that the Minimum Alternative Tax as proposed in the new tax code is more in the nature of wealth tax to be paid by even loss-making companies, companies yet to start business and even on assets yet to be put to use.
“This will have a significant impact on cash flow, thereby hurting fiscal growth, especially for capital intensive and infrastructure companies with long gestation periods,” the industry body said.
In addition, Assocham has also proposed that the code ensure each and every business be required to compute its total taxable income separately regardless of whether it enjoys any tax incentive or not.
Finance Minister Pranab Mukherjee, during an interactive session with industry representatives here Friday, said efforts were being made to introduce the new tax code by April 1, 2011.