The government should look at foreign direct investment as an avenue for expanding the tax base, suggested Parthasarthi Shome, advisor in the office of the Finance Minister.
Shome today suggested a cost-benefit assessment of the effects of foreign direct investment in terms of its benefits versus the losses that result from revenue foregone through the tax sops that are given to attract foreign capital.
Ultimately, we have to look at whether we are able to expand the tax base. The government is continuing its effort to expand the base, he said.
Ficci President Saroj Kumar Poddar suggested a modification in the tax system to remove constraints on in-bound and outbound investments.
In order to encourage Indian companies which had overseas subsidiaries to repatriate their earnings, he said the receipt of dividend and capital gains should be exempted from tax or taxed on a concessional basis.
Poddar also said the government needed to clarify that transactions in respect of such Indian assets would not be regarded as transfer for the purpose of capital gains under Section 47 of the Income Tax Act.
He urged expansion of the scope of Authority of Advance Ruling to cover transactions undertaken by resident assessees.
Ficci also suggested that Dividend Distribution Tax (DDT) needed to be brought within the ambit of double taxation avoidance agreements.
A re-look at transfer pricing norms and provision of a 100 to 300 per cent penalty on the tax payable on the amount of adjustment was also mooted by the industry body.
Jeffrey Owens, director, OECD Centre on Tax Policy and Administration, pointed out that a major challenge existed for Indian corporates with regard to how their overseas subsidiaries were taxed.