The Hindu Business Line : `Simplified tax laws must to boost investments, capital'

A SECTION of India Inc feels that simplification and rationalisation of tax laws and procedures would impart transparency in tax administration and improve the quality of tax services.

"The overall thrust of tax reforms should be on measures to stimulate demand and encourageprivate investment and capital formation. Besides, there should be reduction in taxes to encourage consumer spending, legal changes to stimulate entrepreneurship and transparency in governance," a Federation of Indian Chambers of Commerce and Industry (FICCI) official said.

Capital formation is the key for economic and industrial growth. To attain this goal and attract investment — both domestic and foreign — there is a need to focus on reforms in tax laws by making it simple and lowering the tax rates, the official said. In India, studies in the past have shown that there is a direct co-relation between the quantum of investment made and the rate of growth. This is normally due to the multiplier effect caused by investments made in strategic sectors that increases the level of activities in other sectors.

Further, in order to give timely financial assistance to a company becoming sick, a provision for carry forward of the business losses to the preceding two to three years along with the provision for carry forward of the unadjusted losses in subsequent years should be incorporated. Such provisions already exist in Canada, France, Germany, Japan, the US and the UK.

Transfer pricing has assumed an added significance with resultant increase in foreign direct investment in the country. In the Indian law, the transfer pricing solutions need to be flexible enough to adapt as the group's business develops taking into consideration the organisations perception of the risks of adverse tax assessment.

It should also consider both planning opportunities and risk management and to weigh effective tax rate against fiscal authority challenges and cost compliance, he said. In order to deliberate on some of these issues, FICCI along with OECD (Organisation for Economic Co-operation and Development), IBFD (International Bureau of Fiscal Documentation), and European Commission, is organising an international conference on `Emerging tax policy: Challenges and perspective' in November this year.

"The objective of the conference is to achieve greater clarity with respect to legislation affecting the international practices. Immediate concerns include amendments in the double taxation avoidance treaties, issues related to inbound and outbound investments and treaty shopping," the official said.

The conference would also deliberate on issues concerning business process outsourcing and international taxation of software transactions.

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