Wednesday / July 17.
HomeEconomyNew India tax plan targets foreign firms, rich

New India tax plan targets foreign firms, rich

A cashier counts Indian rupee currency notes inside a bank in MumbaiCompanies with as little as 20 percent of their global assets in India could find themselves facing tax bills in deals involving their domestic units under changes to the tax code that the government proposed on Tuesday.

The government’s Direct Taxes Code 2013 recommended the change along with a new income tax bracket that would require rich people to pay higher taxes.

A previous recommendation in 2010 said that indirect transfers should be taxed in India if the companies involved have at least 50 percent of their assets located in the country.

“This (50 percent) threshold is too high. There could be a situation that a company has 33.33 percent assets in three countries but it will not get taxed anywhere,” said the document, available on the Income Tax Department’s website.

Ketan Dalal, joint tax leader at PwC India, told India Insight that the “new threshold of 20 percent is very low”.

The move seems aimed at making sure India gets its due when foreign companies buy and sell subsidiaries or units that are based in India. For instance, Vodafone, which entered India in 2007 via the Hutchison Whampoa deal, is contesting a tax bill of about 112 billion rupees ($1.86 billion) relating to the acquisition. The Indian Supreme Court ruled in 2012 that Vodafone was not liable to pay any tax over the transaction, but the government changed the rules allowing it to make retroactive tax claims on completed deals.

Separately, the tax code proposal also recommends collecting more tax money from people whose income exceeds 100 million rupees ($1.6 million) annually. The new tax rate would be 35 percent rather than the current highest bracket of 30 percent.

Though the new code proposes to relax the age of “senior citizens” for taxation purposes from 65 years to 60 years, it rejected a panel’s recommendation to revise personal income tax brackets for other age groups as it could result in significant revenue losses of 600 billion rupees ($10 billion).

Out of the 190 recommendations made by the Standing Committee on Finance, 153 were proposed to be accepted wholly or with modifications. The government decided to present the DTC as a fresh bill as incorporating the amendments in the DTC Bill 2010 would make it incomprehensible, the document said.-Reuters