PHDCCI moots tax rationalisation
27 Feb 2007
Direct Taxes
Dividend
distribution tax
The Indian resident companies are required to pay a
dividend distribution tax at the effective rate of 14.03
per cent inclusive of 10 per cent surcharge and 2 per
cent education cess. At a time when the Government is
moving towards streamlining and rationalization of the
taxation structure, levying the dividend distribution
tax, which adds to the burden on the companies, is not
justified. It is suggested that dividend distribution
tax should be withdrawn. Alternatively, necessary amendments
may be made to avoid double taxation.
Fringe
Benefit tax
FBT has caused confusion and imposed additional burden
on the companies, besides taxing even the legitimate
business expenses. In addition to enhancing the cost
of compliance, it has also increased the potential tax
of litigation due to subjectivity involved in determining
as to whether an expense is related to business or personal
benefit.
It is therefore suggested that Fringe Benefit Tax should be withdrawn. Alternatively, normal business related expenditure and its reimbursement should not be subject to fringe benefit tax, especially in cases where there is no employer-employee relationship.
Thus, following expenses should be kept out of the purview of FBT:
-
Sales promotion and publicity
-
Conveyance, tour and travel
-
Use of hotel, boarding and lodging
-
Repair, running and maintenance of motorcars, aircrafts and depreciation thereon
-
Use of telephone including mobile
-
Festival celebrations, maintenance of guesthouse, etc
Rate
of depreciation
Depreciation has been reduced to 15 per cent. In view
of the rapid technological obsolescence, the lowered
depreciation is not adequate to meet the requirement
of replacement of the asset. It is suggested that depreciation
on machinery should be allowed @33.3 per cent to provide
assessees with sufficient plough back of funds. However,
necessary safeguards like creating a depreciation reserve
for providing funds for replacements may be introduced.
Encouraging
investment in research and development
In the prevailing economic order based on competition,
economic growth would be driven, inter alia, by the
ability of firms to achieve ''excellence'' in performance
made possible through innovation and Research &
Development. It is suggested that there should be a
long-term policy for incentivising R&D.
Tax
administration and treatment of tax payers
There is a need to usher in an era of efficient, transparent,
simple and rational direct tax law and to create an
environment where there is minimum interface between
the government and tax collectors so that it reduces
discretion with the tax authorities.
This would reduce harassment of assessees and encourage a better treatment for the taxpayers. The income tax returns should be picked up for scrutiny on a random, non-discretionary basis.
Definition
of the word "intangible asset" (Section 32)
Explanation 3 to Section 32(1) provides for deduction
of depreciation on intangible assets. There is a lot
of confusion whether goodwill purchased is covered as
intangible asset for purposes of depreciation. Goodwill
purchased should expressly form part of block of assets
and be eligible for depreciation. Accordingly, the definition
of intangible assets should be amended.
Fluctuation
in rate of exchange capitalisation in accounts
(Section 43A)
Presently, in respect of plant & machinery against
credit facilities provided either by the foreign suppliers
or by financial institutions, the foreign exchange fluctuations
are not allowed to be adjusted with the original cost
except when the payment is made.
This has brought about an unnecessary deviation between the financial accounts and income tax records necessitating separate and complex information / documentation. Also, this has resulted in a movement from the mercantile system to cash accounting.
It
is suggested that foreign exchange fluctuations should
be allowed to be adjusted with the original cost in
line with the mercantile system of accounting as per
the earlier provision under section 43A.
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