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Wednesday
Feb 28 2001
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0909 hrs IST
2239 EST
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Budget to look at transfer-pricing, e-commerce
M Padmakshan
MUMBAI
THE UNION Budget for 2001-02 is likely to include the recommendations of four committees set up by the government. These are the committee on transfer-pricing, the expert group on service tax, the expert group on Rationalisation of the life insurance sector and the committee on e-commerce.
The government's transfer-pricing policy, in all likelihood, will be unveiled in this Budget. Most multinationals operating in India, especially those in the pharmaceutical and FMCG sectors, are awaiting the budgetary proposals on transfer-pricing.
If this Budget proposes a set of transfer-pricing related rules, MNCs operating in India need to produce supporting documents to the tax authorities to prove that the price of the transaction is in line with the market realities.
The report by the transfer-pricing committee headed by Raj Narain, member, Central Board of Direct Taxes, is important to the government in view of the fast-changing scenario of world business.
The transfer-pricing committee was set up by the CBDT after the government realised that it needed to put in place a transfer-pricing policy to safeguard its revenue interest. It would be a surprise if the Budget did not have any mention on the recommendations of the transfer-pricing committee.
The expert group on Taxation of Life Insurance Sector headed by V U Eradi, former member of CBDT, has suggested that LIC's shareholders surplus be taxed at the prevailing rate of tax applicable to corporates, i.e. 38.5 per cent, while the policy-holders surplus is proposed to be taxed at the rate of 7 per cent.
LIC is taxed at 12.5 per cent and there is no segregation of income for tax purposes between shareholders and policy-holders. The incidence of taxation will come down to about 8.5 per cent from the current rate of 12.5 per cent if the proposed package is implemented.
The recommendations of the Kanwarjit Singh Committee on electronic commerce and taxation are expected to be a part of the Budget. The committee headed by Kanwarjit Singh, chief commissioner (income-tax), Jaipur, was set up for suggesting legislative measures for bringing e-commerce under the tax net.
The committee is, however, learnt to have suggested that that there was no need, at this point of time, to take a view on taxation with regard to e-commerce. But the recommendations of this committee are crucial for companies engaged in e-commerce who want to know how much income, if any, will be taxed within the country.
The recommendation of the expert group on service tax is expected to be another feature of this Budget. The expert group headed by Govind Rao, director of Indian Institute of Social Science, Bangalore, has suggested two methods to widen the service tax net.
The government can either increase the number of services under the tax net -- currently 26 services are under the tax net -- or tax all services and formulate a negative list containing services that are exempt.
However, hotels, restaurants, cable operators, road transport operators, media, postal services (except postcard and money orders), banking services other than lending or borrowing (for example charges levied on demand draft) are the new services recommended for taxation by the expert group on service tax.
It is also learnt that the group has recommended a threshold limit of Rs 10 lakh for any service provider to be brought under this tax net.
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