The Hindu Business Line : Realistic fiscal framework needed: PwC Survey

India’s fiscal framework needs to account for changing business realities and practices, say a number of respondents to a survey commissioned by professional services firm PricewaterhouseCoopers’.

The PwC Fiscal Framework in India Survey 2008 has revealed that simplification of tax laws and reduction in the compliance burden was the most pressing need for corporates in India. The Survey was conducted over a period of six months and 70 large Indian and multinational companies across industry sectors participated.

“The fiscal framework vis-À-vis the tax policy and administration needs to keep pace with the current realities for doing business.

“A verified and tested framework that has performed under various market conditions and trade environments is something that companies in India are looking for as their businesses become more global in nature day by day”, Mr Ajay Kumar, Executive Director, PwC told reporters here.

Wish-list for new IT code

On the forthcoming new income-tax code, the wish-list of the respondents comprised of simplification of tax laws (87 per cent), providing lesser discretionary powers to tax officers (60 per cent) and detailed laws with suitable clarifications (53 per cent).

Other areas of action for the new tax code included creation of common forum to bring about greater clarity on tax law provisions; giving power of settlement to a committee of tax officers instead of individuals and stability in tax rates for at least three years.

Stability of tax rates, one of the basic tenets of taxation, remains a distant dream, both at the Central and at State levels. Each year, 100-200 amendments to the income-tax law are passed as part of the Annual Budget. If one were to add these up on a yearly basis, more than 7,500 amendments could well have been carried out since the Income-Tax Act was enacted in 1961.

Retrospective amendments tend to shake the taxpayers’ faith in the system tremendously, according to PwC.

Interaction with corporates

Meanwhile, with increasing cross-border transactions being undertaken by Indian companies, a number of respondents found the present fiscal framework neutral or non-conducive in aiding the process of merger and demerger.

“Typical wording of provisions and ambiguities in law lead to differences while current tax-related M&A policies do not make for an efficient restructuring of businesses from the tax cost management perspective”, says the survey findings.

The PwC survey has also stressed the need for interaction between companies and tax authorities to become regular and transparent.

The hesitation on the part of most Indian companies on approaching tax authorities for clarifications shows that they are not very confident of being heard or of being given a solution by the tax authorities.

“This is not a healthy sign for any country’s fiscal framework”, concludes the PwC survey report.

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