German Business Network (GBN) Webcast India Budget & Current Developments 2016

Transcription

1 German Business Network (GBN) Webcast India Budget & Current Developments 2016 March 4, 2016

2 Your hosts today Dirk Egbers Partner Global Leader of the German Business Network (GBN) Phone: Mobile: Mail: Marita Maier Partner GBN Leader India Phone: Mobile: Mail: Aashish Kasad Partner Tax & Regulatory Services Phone: Mobile: Mail: Divyesh Lapsiwala Partner Indirect Tax Phone: Mobile: Mail: Page 2

3 German Business Network ( GBN ) Marita Maier GBN Leader India Partner Direct phone: Mobile: Mail: marita.maier@in.ey.com Page 3 4 March 2016 GBN Webcast - India - Budget Developments 2016

4 Agenda Page 4

5 Agenda Indian Economy Overview India s attractiveness Foreign Direct Investment ( FDI ) liberalisation Recent key initiatives of Government of India ( GOI ) Economic overview Key policy amendments in Budget Key Direct Tax Budget proposals Key Indirect Tax Budget proposals Questions and Answers Page 5

6 Indian Economy Overview Page 6

7 India s attractiveness Page 7

8 India s attractiveness (1/2) India is the most attractive investment destination in 2015 as per EY s India Attractiveness Survey m new manufacturing jobs by 2022, through Make in India campaign 925m working age population (15-64 years) by 2020 India s pool of college educated talent to rise by more than 45m in 10 years Page 8

9 India s attractiveness (2/2) IMF has hailed India as a 'bright spot' amidst a slowing global economy 94% of the surveyed CEOs/CFOs from leading German High-Tech companies stated India currently offers a better investment climate than other BRIC countries [EY Delphi study, - released by Prime Minister Narendra during his recent visit to Germany] Germany has consistently been one of the 10 FDI players in India, currently it ranks 8 th. The vigour and anticipation in Indo-German ties is captured well in the joint statement issued during Prime Minister Modi s visit to Germany in We view each other s development as mutually reinforcing and offering significant opportunities for expanding cooperation between the two countries. Our common objective is to encourage greater synergies between German engineering, experience in sustainable development, innovation and skills, and the new opportunities available in India and through Make in India, Clean India, Digital India and other initiatives towards achieving economic growth and sustainable development. Our strategic partnership is entering a new and more intensive phase. Page 9

10 FDI liberalisation Page 10

11 FDI liberalisation Construction FDI permitted under automatic route subject to conditions Defence Upto 49% stake allowed, subject to approval (up from 26%) Railways FDI permitted under automatic route in construction, operation and maintenance in specified Rail projects Emerged as the number one FDI destination in the world* Insurance Foreign ownership ceiling raised from 26% to 49% LLP FDI permitted (including for downstream investment) under automatic route where 100% FDI is allowed *Source: fdi Markets, May 2015 and September 2015 Page 11

12 Recent key initiatives of GOI Page 12

13 Recent key initiatives of GOI Make in India To increase share of manufacturing in Gross Domestic Product ( GDP ) to 25% by 2022 Job creation and skill enhancement Best-in-class manufacturing infrastructure with emphasis on ease of doing business Digital India Digital access to all - World s most ambitious broadband project Rural internet coverage to be expanded to 250,000 villages by 2017 In September 2015, Google announced it would make more than 500 Indian railway stations Wi-Fi enabled. Focus on building sanitation facilities, waste disposal systems, village cleanliness, safe and adequate water supply Expected expenditure is ~US$10b World Bank approved a US$1.5b loan to support Clean India To develop 100 smart cities in India by 2020 Urban infrastructure investment of ~US$650b proposed over next 20 years In process of finalizing 500 cities for upgrading them to smart city status Smart cities Page 13

14 Economic overview Page 14

15 Economic overview (1/2) The Budget came at a time of unusual volatility in the international economic environment Indian capital markets had begun to swing on fears that the global recovery may be faltering, while risks of extreme events are rising. Fiscal target of 3.9% of GDP for financial year ( FY ) achieved, target retained at 3.5% for FY The Economic Survey for calls India a haven of stability and an outpost of opportunity. India s economic growth is amongst the highest in the world Source: International Monetary Fund ( IMF ), World Economic Outlook, October 2015 *For India, data corresponds to the financial year, starting in April and ending in March Page 15

16 Economic overview (2/2) Indicator FY14 FY15 FY16P FY17 Growth indicators GDP growth (%)* Index of industrial production (%) External sector Exports (% y o y) 4.9 (1.8) (9.1) 7.6 Imports (% y o y) (8.4) (0.4) (8.0) 10.9 Current Account Deficit (US$b) Current Account Deficit (as a % to GDP) Monetary indicators Inflation WPI (% y o y) (1.7) 3.9 Inflation CPI (% y-o-y) India is expected to clock more than 7% growth in the coming years. Key drivers: Rising domestic demand Policy reforms In the short term, India s trade to be impacted by world trade slowdown: World Trade Organization reduced global trade growth forecast to 2.8% in 2015 from 3.3% earlier India to experience muted trade growth in FY16 as demand from key exports markets have reduced *Growth numbers calculated on FY12 base year Source: IMF WEO Oct 15; CMIE online database, accessed 16 December 2015 CMIE projections Page 16

17 Key policy amendments in Budget Page 17

18 Union Budget 2016 theme Transform India 1. Agriculture and Farmers' Welfare focus on doubling farmers' income in five years 2. Rural Sector emphasis on rural employment and infrastructure 3. Social Sector including Healthcare cover all under welfare and health services 4. Education, Skills and Job Creation 5. Infrastructure and Investment 6. Financial Sector Reforms to make India a knowledge based and productive society to enhance efficiency and quality of life to enhance efficiency and quality of life 7. Governance, Ease of Doing Business to bring transparency and stability 8. Fiscal Discipline prudent management of Government finances and delivery of benefits to the needy 9. Tax Reforms to reduce compliance burden with faith in the citizenry Page 18

19 Key policy amendments in Budget Amendments in FDI regulations Sector Existing Proposed Marketing of food products, produced and manufactured in India Not permitted 100% allowed under approval route Insurance and Pension sectors 49% under approval route FDI cap of 49% in under automatic route Instrument for FDI Equity, Compulsorily Convertible Preference Shares, Compulsorily Convertible Debentures Hybrid instruments Other key policy amendments Foreign investors will be accorded Residency Status subject to certain conditions. Currently, these investors are granted business visa only up to 5 years at a time Signing of Centre State Investment Agreement GOI to introduce a bill to amend the Companies Act, 2013 in the current Budget Session of the Parliament. To propose for registration of companies in one day Page 19

20 Key Tax proposals Page 20

21 Key Tax proposals The Tax proposals announced in the budget cater to the following nine categories: 1. Incentivizing domestic value addition to help Make in India 2. Measures to boost growth and employment generation 3. Additional resource mobilization for agriculture, rural economy and clean environment 4. Reducing litigation and providing certainty in taxation 5. Simplification and rationalization of taxation 6. Use of Technology for creating accountability 7. Relief to small tax payers 8. Measures for moving towards a pensioned society 9. Measures for promoting affordable housing Page 21

22 Key Direct Tax Budget proposals Page 22

23 Proposals relating to Corporate Tax rates and phasing out of incentives/deductions Page 23

24 Corporate Tax Rates for FY Corporate tax remain unchanged for both domestic (30%) and foreign companies (40%) except for domestic companies engaged in: Manufacturing activities and set-up and registered in India after 1 March 2016 and does not claim specified tax incentives - 25% having total turnover or gross receipts in the FY <= INR 50 million - 29% Description A) Domestic company Rate (%) when the total taxable income is > INR 100 million > 10 million and =< INR 100 million =< INR 10 million Turnover > INR 50 million Turnover <= INR 50 million Newly set up manufacturing company (optional) MAT (Regular) DDT Buy Back Tax B) Foreign company on business income in India Step towards achieving of reducing corporate tax rate to 25% in coming years Page 24

25 Phasing out of incentives/deductions (1/2) Particulars Units undertaking manufacturing or production or provision of services in Special Economic Zones Incentive currently available subject to specified conditions - 100% of profits for first 5 years - 50% of profits for next 5 years Proposed deduction/ sunset clause No deduction if commencement of activity is on or after 1 April 2020 Expenditure on specified social development projects or schemes Deduction available on certain eligible social development project or scheme No deduction from 1 April 2017 Expenditure incurred on any notified skill development project by a company Weighted deduction of 150% 100% from 1 April 2020 Page 25

26 Phasing out of incentives/deductions (2/2) Particulars Development, operation and maintenance of an infrastructure facility Development of SEZ Production of mineral oil and natural gas Amount paid to specified/ approved institutions for scientific research/ scientific research in approved in-house research facility Incentive currently available subject to specified conditions 100% of profit eligible for deduction for specified period Weighted deduction ranges from 150%/ 175%/ 200% Proposed deduction/ sunset clause No deduction if specified activity commences on or after 1 April % up to 31 March 2020 and 100% thereafter Important tax reform to meet objectives of reducing corporate tax rates, simplification of tax laws, reduction of litigations Page 26

27 Clarity on implementation of internationally accepted concept of POEM and GAAR Page 27

28 Clarity on implementation of internationally accepted concept of POEM and GAAR Place of Effective Management ( POEM ) The concept of deeming a foreign company to be a resident in India if its place of effective management ( POEM ) in that year is in India was introduced in the Budget 2015 with effect from 1 April 2016 It is proposed to defer the effective date of implementing this provision to 1 April 2017 to bring clarity regarding the guidelines and on applicability of the other provisions where the foreign company becomes resident for first time due to POEM General Anti-Avoidance Rules ( GAAR ) GAAR was earlier deferred by 2 years and was proposed to be made effective from 1 April 2017 to enable the taxpayers to be well versed with the provisions The Budget clarifies the commitment to implement GAAR from 1 April 2017 Page 28

29 Proposals driven by Base Erosion Profit Sharing ( BEPS ) Action Plan Page 29

30 Proposals driven by BEPS Action Plan (1/3) BEPS Action Plan 1 - Equalisation levy To address the challenge relating to taxation of digital transactions Equalization levy to be 6% of amount received by a non-resident for specified services provided to a resident in India or a non-resident having a permanent establishment in India Specified services to cover online advertisements, provision for digital advertising space or any other facility or service for the purpose of online advertisements or any other notified services Not applicable if aggregate consideration for the specified service is less than INR 0.1 million New set of provisions to be introduced (defining terms, collection procedures, compliance rules, etc) and notified Page 30

31 Proposals driven by BEPS Action Plan (2/3) BEPS Action Plan 5 Nexus approach income arising from exploitation of Intellectual property should be attributed and taxed where substantial research and development activities are undertaken To provide an additional incentive for companies to retain and commercialize existing patents and to develop new innovative patented products A concessional tax rate of 10% (plus applicable surcharge and cess) on royalty income of an eligible assessee from patents developed and registered in India is introduced No MAT will be applicable on such income Eligible assessee is inter-alia, defined as the person resident in India who is true and first inventor of the invention and whose name is entered on patent register as the patentee under Patents Act, 1970 Page 31

32 Proposals driven by BEPS Action Plan (3/3) BEPS Action Plan 13 Country by Country Reporting ( CbCR ) CbCR proposed to be applicable, w.e.f FY , to: The Indian parent of the international group or Indian designate entity of the foreign parent In the case of foreign parent, who has to furnish CbC report in another country, then any constituent entity in India will furnish information regarding the country or territory of residence of the parent of the international group to which it belongs An entity in India belonging to an international group shall be required to furnish CbCR to the prescribed authority if the parent entity of the group is: In a country with which India does not have an arrangement for exchange of CbCR such country is not exchanging such information this fact has been intimated to the entity by the prescribed authority Page 32

33 New Tax exemptions for specified business Page 33

34 New Tax exemptions for specified business Subject to certain conditions, a foreign company earning income shall not be taxable in India on account of storage of crude oil in a facility in India and sale of crude oil therefrom to any person resident in India. This amendment shall be effective from financial year onwards from activities limited to display of uncut and un-assorted diamond in any Special Zone notified by the Central Government These amendment will take effect from financial year onwards Start-ups - deduction of 100% of profits for any 3 consecutive years out of first five years subject to certain conditions Start-ups defined as business undertaking innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property; total turnover should not exceed INR 250 million per annum Page 34

35 Reducing litigations and use of technology Page 35

36 Reducing litigations and use of technology (1/2) No Minimum Alternate Tax ( MAT ) on foreign companies clarity brought to provide the said benefit to taxpayer retrospectively Assurance for no retrospective amendment to provide a stable and predictable taxation regime Disputes relating to indirect transfer of shares - one-time scheme of Dispute Resolution, in which, subject to agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc. under BIPA, a case can be settled by paying only the tax arrears in which case liability of the interest and penalty shall be waived Introduction of Direct Tax Dispute Resolution Scheme ( DTDRS ) Under this scheme, the taxpayer at his option, whose appeal is pending before the first appellate authority, may settle the dispute by paying taxes and concessional penalty No appeal to be filed by Tax Department against the order of first appellate authority (i.e. Dispute Resolution) Notices and document request can be issued by an Tax Department in electronic form Page 36

37 Reducing litigations and use of technology (2/2) Non-applicability of higher rate of withholding tax on payments to non-residents in absence of a Permanent Account Number. Alternate document as may be prescribed could be submitted Clarification on concessional rate of capital gains tax Definition of Unlisted Securities for computation of capital gains to include shares of private companies Thus, concessional rate of long term capital gain (excluding surcharge and cess) available to non-residents on sale of shares of a private company It is proposed to reduce holding period from three to two years to get benefit of long term capital gain regime in case of unlisted companies Page 37

38 Key Indirect Tax budget proposals Page 38

39 Proposals follow a definitive theme Incentivizing Make in India Overcoming technology glitches and controversial provisions Simplification and rationalization Reducing litigation and providing certainty in taxation Although a few devils in the fine print do exist! Page 39

40 Four months & three cesses NEW Krishi Kalyan Cess - Proposed to be levied on all the taxable services at 0.5% - To be collected as service tax and thus, inflates effective service tax rate from existing 14.5% to 15% - Effective 1 June Creditable for service providers; cost for others Infrastructure Cess - Levied on certain motor vehicles at 0-4% depending upon variant and fuel type effective 1 March Payable in cash & has an inflationary impact - Automobile manufacturers already increasing prices in domestic market - Mood dampener in already slowing growth in automobile sector NEW Swachh Bharat Cess Much anticipated creditability not proposed Abolition of 13 cesses, where the overall annual collections were not significant Page 40

41 Incentivizing Make in India Lowering custom duty and excise duty rates for inputs/ parts/ components used in certain industries as well as final products thereof Information technology hardware Renewable Energy Maintenance, repair and overhaul (MRO) of aircrafts Ship repairing Machinery Food processing Fertilizers Textiles - Specified fibres and yarns Mineral fuels and mineral oils Chemicals and petrochemicals Page 41

42 Ease of doing business in India CUSTOMS DUTY EXCISE DUTY Deferred payment of custom duty * Simplified self-declaration mechanism for importing goods at concessional rate of duty for manufacture and export of goods * Baggage rules simplified * No change in peak rate of customs duty Permission based duty exemption under replaced with selfdeclaration * Manufacturers with multiple factories now permitted to transfer and avail credits for inputs stored in a common warehouse * Provisions with regard to utilisation of credits based on FIFO basis now deleted * No change in median rate of excise duty Page 42

43 Services bought under service tax levy Ocean freight for import consignments liable to service tax wef 1 June 2016 Impact on domestic service providers/ to be evaluated vis-à-vis both taxability of output and creditability of taxes on service of shipping lines Potential double tax as freight included in value of goods for import duties Inbound air freight continues to remain outside tax net Assignment by the Government of the right to use the radio-frequency spectrum and subsequent transfers to be declared as deemed service wef ratification date of budget proposals No clarity on treatment of transfers completed prior to ratification of proposal above Eligibility for credits in hands of recipient distributed over period to which the right relates - triggering negative cash flow impact Cenvat credit of monthly or annual user charges in respect of service by way of assignment of right to use natural resources allowed in year of payment itself Rule regarding applicability of tax on activities over transition period tweaked to narrow benefit and could thus trigger litigation Page 43

44 Clarificatory amendments Taxation of software in certain cases IT software (bearing retail sale price basis(rsp)) recorded on media exempt from service tax subject to payment of excise duty/ customs duty (1 March 2016) On customised software (where no RSP required) excise duty to apply on value of media and service tax on residual value Incentives to air travel agent Incentives received by air travel agent from companies providing computer reservation systems clarified to be taxable Similar/ comparable items prevail in other industries as well tax positions likely to be impact and thus, need to be revisited Page 44

45 Services by Government/ Local Authority All services received from Government taxable under reverse charge (1 April 2016) Identify Evaluate Comply Identifying all such payments Evaluate taxability of each items Set up systems for tracking and other controls Likely HUGE impact Certain services exempted Page 45

46 Rationalization CENVAT Credit Items available for credit expanded example specified wagons, office equipment Capital goods of specified threshold (Rs 10,000 per piece) reclassified as inputs credit available immediately on receipt but also subject to reversals Common credits allowed to be distributed to outsourced manufacturing units through Input Service Distributor (ISD) mechanism Cenvat credit mechanism for taxpayers engaged in taxable/ exempted activities at parallel Option to maintain separate books withdrawn Ad-hoc payments vs reversals in lieu of availment of credit vis-à-vis exempted activities Scope of exempted services widened Credit now allowed to be availed on an invoice issued by a service provider for clearance of goods Page 46

47 Reporting through returns Central Excise Substantial reduction in number of returns to be filed (27 to 13) Revision of return enabled Service tax and CENVAT Requirement of annual return by 30 November of subsequent financial year Requirement comes in force effective 1 April 2016 Clarity on whether annual return for FY16 to be filed shall emerge in due course Page 47

48 Exemption overhaul - customs New exemptions/ concessions 1. Basic customs duty (BCD) and countervailing duty (CVD) exemption on import of specified goods required for exploration and production of hydrocarbon 2. BCD exemption and 6% CVD on engine for hybrid electric vehicles 3. BCD reduced for refrigerated containers from 10% to 5% 4. BCD reduced for cold chain including pre-cooling unit, packhouses, sorting and grading lines and ripening chambers from 10% to 5% Exemptions withdrawn 1. CVD exemption withdrawn on specified machinery required for construction of roads 2. BCD, CVD and special additional duty (SAD) exemption withdrawn on charger / adapter, battery and wired headsets / speakers for manufacture of mobile phone 3. SAD exemption withdrawn on populated PCBs for manufacture of personal computers (laptop or desktop) and mobile phone/tablet computer 5. Custom duty exemption on certain dialysis equipment Page 48

49 Exemption overhaul - customs New exemptions/ concessions 1. Basic customs duty (BCD) and countervailing duty (CVD) exemption on import of specified goods required for exploration and production of hydrocarbon 2. BCD exemption and 6% CVD on engine for hybrid electric vehicles 3. BCD reduced for refrigerated containers from 10% to 5% 4. BCD reduced for cold chain including pre-cooling unit, packhouses, sorting and grading lines and ripening chambers from 10% to 5% Exemptions withdrawn 1. CVD exemption withdrawn on specified machinery required for construction of roads 2. BCD, CVD and special additional duty (SAD) exemption withdrawn on charger / adapter, battery and wired headsets / speakers for manufacture of mobile phone 3. SAD exemption withdrawn on populated PCBs for manufacture of personal computers (laptop or desktop) and mobile phone/tablet computer 5. Custom duty exemption on certain dialysis equipment Page 49

50 Litigation related proposals AMNESTY Indirect Tax Dispute Resolution Scheme, 2016 (1 June 2016) Applicable to Customs, Excise and Service tax laws Dispute pending before Commissioner (Appeals) for cases of tax / duty up to Rs 5 million Requires payment of tax, interest and 25% penalty Window closes on 31 December 2016 Limitation period in cases of non-evasion of tax/ duty increased by one year across customs/ excise/ service tax (from enactment) More handle to tax authority Stricter norms being codified to encourage greater degree of selfcompliance No change in Limitation period for cases allegedly involving evasion of tax/ duty Pegged at 5 years LOOK BACK Limitation period under service calculated from the return filing date. New requirement of annual return could have a bearing in this regard Page 50

51 Litigation related proposals Interest rates on delayed payments on tax/ duty rationalized (from enactment) Customs/ excise - reduced from 18% to 15% Service tax - maximum interest reduced from 30% to 15%, except in case of taxes collected but not deposited, where it would be 24% INTEREST RATES Service tax arrest and prosecution (from enactment) Limit for launching prosecution raised from Rs 10 million to Rs 20 million for service tax evasion Power to arrest restricted only where tax collected but not deposited exceeds Rs 20 million Prosecution proceedings to be withdrawn for excise duty < Rs 0.5 million and pending >15 years by administrative instruction PROSECUTION Page 51

52 Goods and Service Tax Commitment to implement GST regime Constitution amendment current roadblock Preparedness otherwise Business process documents issued Tender for GST Network (GSTN compliance/ administrative portal) awarded Department architecture (hierarchy/ number of officer, etc) at draft stage Informal advocacy window available Page 52

53 Critical success factors for GST implementation Commitment Centralization and Standardization Project Management Resource Planning Enabling Technology Sponsorship from the highest executive level Controlling work flow centrally ownership and accountability Need Assessment and resource mapping Comprehensive technology solution for business and customers Standard operating procedures Clarity on roles and responsibilities Maximum possible efficiency Structured data collection project management disciplines Real time data processing and multi system interface Page 53

54 This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor. For more information, please follow us on Page 54

55 Questions and Answers Page 55

56 Thank you!