New Delhi: Big multinational companies (MNCs) such as Vodafone Group Plc. and Cairn Energy Plc. did not opt to resolve their disputes with the government under the direct tax dispute resolution scheme which ended on 31 January, said revenue secretary Hasmukh Adhia.
In an interview, Adhia said the response to the scheme, which gave taxpayers the option of paying the principal tax amount and closing the case, hadn’t been very good.
The budget said long-term capital gains tax (LTCG) exemption on sale of listed securities will be denied if securities transaction tax (STT) was not paid at the time of acquiring them.
Currently, STT is not paid when shares are acquired in off-market transactions such as gifting, issuing employee stock options and selling shares to private equity firms.
Assuring investors, Adhia said the provision is aimed at sham transactions and that all genuine transactions would be protected. Edited excerpts:
Your direct tax collection targets are optimistic for 2017-18. This is despite the fact that there were two income declaration schemes this year which led to good tax collections in 2016-17.
In direct tax, this year, we got additional taxes of Rs7,000 crore in the first instalment of income disclosure scheme (IDS), and we expect another Rs5,000 crore in the second instalment due in March. In IDS, we initially received declarations amounting to Rs67,000 crore but of this, one declaration of around Rs13,000 crore failed. So, total tax collections will be around Rs23,000 crore, half of which will come this year and half will come next year.
As against that, refunds of corporate and personal income is 36% higher than last year. The refund outgo is higher as we did not want to stop refunds. Corporate income tax has not been very good, though personal income tax has grown well, as reflected by the advance tax payments. We have not factored in the amount that will come in under the Pradhan Mantri Garib Kalyan Yojana.
How has the response been to the direct tax dispute resolution scheme which closed on 31 January? Did the big MNCs like Vodafone and Cairn Energy come to resolve their dispute under the scheme?
The response has not been good. We got around Rs1,200 crore under the scheme. None of the big multinational companies came in. Some domestic companies came in.
How will you tread the fine line between catching tax evaders and ensuring there is no harassment after demonetisation? The provisions in the budget relating to the survey have also increased worries.
That is why we have brought Operation Clean Money. It is an absolutely faceless mechanism of asking taxpayers to explain the source of incomes. They have been given time till 10 days. We have identified 18 lakh taxpayers in the first phase where there are glaring cases of mismatch. More will follow. Tax evaders should come forward and declare under PMGKY (Pradhan Mantri Garib Kalyan Yojana). Why should any genuine taxpayer be harassed? Survey operations are conducted based on data.
Will you specifically exempt private equity, employee stock options, holding firms, trusts with regards to LTCG provisions proposed in the budget?
We will exempt all the categories of people who are genuine investors. The aim is to target only those who have created shell companies. We have only given ourselves enabling powers to check the misuse of the LTCG provision We will wait for a few days for feedback from the people. The exemptions will be notified after the passage of the finance bill in Parliament.
As you are preparing to enter a new tax regime, you face a very unhappy CBEC (Central Board of Excise and Customs)cadre. How do you plan to tackle the simmering discontent among the officials? Any possibility of a relook of the provisions agreed upon by the GST council?
Any change is very difficult to adapt. You are used to a particular way of life and suddenly there is a complete change in the way taxation is being done. Many decisions will now have to be taken jointly with the states. So there would be some fear. I can appreciate that. That does not mean someone’s work is going to get reduced. There will be enough work for everyone. Nobody’s promotion will get affected and we have assured that no positions will be reduced.
There will be no review of the proposals. But there could be flexibility depending on the agreement between the centre and the states. Some states are saying you keep some of the small taxpayers.
India has negotiated tax treaties with Mauritius, Cyprus and Singapore. Will it negotiate its tax treaty with Netherlands as well?
We will look at it but the Netherlands treaty is not harming us at all. Taxing right is with the resident country and not the source country but if anyone has more than 10% stake in an Indian company and transfers this to another Indian company, then we have the power to tax those transactions. They have a 25% capital gains tax so its not like they are like Mauritius (where capital gains tax is zero percent) But they have a participation exemption window, wherein if the investment is more than 5% and not in the nature of portfolio investment, then they give some discount in terms of tax.