The lok Sabha on Thursday passed the Finance Bill after Finance Minister Arun Jaitley sought to address concerns of foreign investors on Minimum Alternate Tax (MAT), which spooked the stock market in the last few weeks, and announced some domestic concessions, including withdrawal of Service Tax on social sector schemes. Jaitley also said an “extremely simplified” Income-Tax return form will soon be brought.
The Government also dropped the move to set up Public Debt Management Agency (PDMA) and transfer the power to regulate Government bonds from Reserve Bank to Securities and Exchange Board of India (SEBI). The MAT is a tax on capital gains arising out of book profits on companies registered in India. The rate of tax for Foreign Institutional Investors (FIIs) is 20 per cent currently. This controversy was at the heart of a major decline in the Indian market after the Budget. FIIs are bitterly opposed to the retrospective provisions of MAT. The matter is sub-judice in the Supreme Court, but the flight of FII investment has seen a one-way decline in the market. Tax authorities have so far issued notices to 91 FIIs registered in India to settle their tax cases within a month. The amount involved is estimated to be around Rs7,000 crore.
Replying to a debate on the Finance Bill, Jaitley sought the cooperation of the Opposition for reform measures like land Acquisition Bill, saying the country needs to take advantage of the global situation to push growth. “If we can put our house in order and put an end to political obstructionism, if States can come together, that will add to the national growth rate,” he said.
As regards the tax concessions, Jaitley said Service Tax will not apply to new social sector insurance and pension schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana, Suraksha Bima Yojana and Atal Pension Yojana. On MAT, Jaitley offered relief by exempting income foreign firms earned from securities transactions and interest, royalties and fees for technical service from MAT. The exemption would apply only in those cases where the normal tax rate is below 18.5 per cent.
He, however, offered no relief retrospectively as has been demanded by foreign portfolio investors. The rules for the application of MAT for real estate investment trusts were also eased. The Finance Bill has proposed that a foreign company would be liable to pay tax in India if its effective place of management was in India “any time” in the previous year. “Taking into account the concerns raised, I propose to drop the phrase “at any time” so that no ambiguity remains. Thus a foreign company will be treated as a company resident in India for a previous year if its place of effective management is in India in that previous year,” he added.
Jaitley has also relaxed the norms for offshore funds like Sovereign Wealth Funds (SWFs), Government funds and pension funds wanting to invest in India as they are regulated in their home countries. “...Conditions regarding minimum number of investors, threshold of participation of interest of members, etc will not apply in the case of investment set up by foreign Governments, or central banks or SWF subject to fulfillment of (certain) conditions,” he said.
The Government’s move to bring series of amendments in the Finance Bill was vehemently criticized from all quarters. Even friendly parties like AIADMK and BJD blamed the Finance Minister for “last minute games.” Responding to the Opposition parties’ protests, Speaker Sumitra Mahajan also criticised Jaitley for bringing last minute amendments without proper notice.
The Finance Minister also reduced export duty on iron ore fines (with less than 58 per cent iron content) to 10 per cent from 30 per cent as a relief to the mining industry affected by substantial fall in international prices. However, export duty on other iron ore required by the domestic steel industry is retained at 30 per cent.
Referring to the controversial new Income-Tax Return form, he said an “extremely simplified” Income-Tax Return form will soon be brought. “I am having the entire matter reviewed and very soon you will find an extremely simplified procedure coming for us,” he said. “Recently, a controversy did come up. There is an old Income-Tax form of 12 pages which was made thirteen-and-half pages. I was out of the country when this was done, I had it stopped.”
The Government also dropped plans for the time being to strip the RBI of powers to regulate Government bonds and give it to an independent agency. RBI and several economists had already come out against the Government’s move. The Government also withdrew proposals on amendments on RBI Act.