Union Budget 2018-19 Swiss - Indian Chamber of Commerce April, 2018 #Budget2018 #KPMGBudgetLive kpmg.com/in/unionbudget18
Contents 1 India and the World 2 Overview of Indian Corporation Tax Regime 3 Budget highlights and tax proposals 4 Other considerations 5 Watch out For 2
India and the World
Around the Globe and India Outlook Globalisation Vs Protectionism Brexit European Union? German/EU push for talks on FTA with India U.S.A China Trade War Trump s Tax Reforms Automatic EOI between India and Switzerland (from Jan 1, 2018) North & South Korea Summit talks Demonetization and GST: Induced supply shocks have eased down considerably FDI increasing manifold 4
Indian Economy: Indicators ` ` ` GST Introduced (50% increase in number of indirect taxpayers adding almost 3.4 million new indirect tax payers) GDP growth (%) 6.5% in FY 2017-18 7.0 to 7.5 per cent growth projected in the coming years Bank Recapitalization (Addressing NPA issue and increasing credit growth) Fiscal deficit (%) of GDP FY 2016-17: 3.5%; FY 2017-18: 3.5% (Fiscal deficit slippage from target of 3.2%) ` Consumer price index inflation (%) FY17-18: 3.3% Declining trend At Six Year Low Demonetisation impact : Taxpayer base increased (1.8 Million additional taxpayers) Forex reserves FY18 : 343 bn ($ 425 bn) Forex reserves increased at 14.1% (Crude Oil Watch) Disinvestment Strategy and IBC introduced 5
Ease of Doing Business: India Shining India in top 100* Countries ranked 190 Reforms for Further Improving the ranking 1. Reducing Tax litigation 2. Early Redressal of Pending Appeals 3. Abolition of FIPB Year 53.93 India s rise Overall rank 56.05 DTF score 60.76 4. Enhanced focus on Infrastructure sector (budget allocation increased by 25% with focus on completion of existing projects) 5. Expanding R&D in India 134 2015 130 2017 100 2018 6. Streamlining Labour Laws Source: Doing business 2018 Reforming to create jobs; World bank 6
India s journey with Switzerland Marked acceleration in growth over the past two decades Annual GDP growth (%) Recessionary Plunge 9.6% Quick Recovery Recovery 8.4% 7.0% 6.7% 6.6% 6.9% 7.2% 7.6% 7.1% 7.4% 6.5% 5.1% 4.3% along with increasing foreign investment Foreign direct investment (USD billion) $53.43 $46.80 $44.88 $41.90 $34.80 $36.80 $36.40 $22.80 $59.41 $48.14 2001 2005 2007 2009 2011 2012 2013 2014 2015 2016 2017 2018 2019 expected 2006-07 2008-09 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Dec-17 * GDP benchmark for 2015 shiftedd from factor costs to market price to bring in line with most of the countries and the base year for calculation of GDP changed from 2004-05 to 2011-12 FDI inflows from Switzerland (USD Billion) India s Trade with Switzerland (USD Billion) 1.00 0.89 40.0 34.76 32.16 0.80 0.60 0.40 0.20 0.00 2009-10 0.10 Source: RBI & DIPP 2010-11 0.23 2011-12 0.30 2012-13 0.34 0.34 2013-14 2014-15 0.24 2015-16 0.51 2016-17 0.34 Dec-17 30.0 20.0 10.0 0.0 14.67 24.80 19.31 22.13 19.3 17.25 16.19 0.59 0.69 1.10 1.12 1.78 1.07 0.98 0.97 0.82 2009-10 2010-11 2011-12 Source: Ministry of Commerce & Industry website 2012-13 2013-14 2014-15 Exports Imports 2015-16 2016-17 2017-18 7
Overview of the Indian Corporation Tax Regime
Overview on Indian corporate tax regime Carry forward of Losses / Depreciation Losses generally carry forward for 8 years; Unabsorbed Depreciation carried forward for unlimited period Transfer Pricing Transfer Pricing provisions applicable with regard to related parties transactions; Tested for Arms Length Price Goods and Service Tax Trade Tax i.e. Goods and Service Tax (ranging between 5% to 28%) on supply of goods and services Comprehensive Dispute Resolution Effective ruling practices - Advance Pricing Agreements, Advance Authority of Ruling, Safe Harbour Rules Withholding tax Withholding tax mechanism prescribed for payments to resident or non-residents For Royalty / Fees for Technical Services Indian domestic law and the India-Swiss tax treaty provide a tax rate of 10% Tax Treaties Extensive tax treaty network (90+ countries) India Active participant to BEPS Project MAT / AMT Leviable where book profits / adjusted taxable income exceeds the total income computer under normal provisions. MAT - 18.5% of book profits (specific adjustments) Statutory Rate of Tax Domestic Company - 34.944% Foreign Company 43.68%; LLP / Firms 34.944% Dividend Distribution Tax @ 20.56% (Cess 4%) (not leviable on LLP s). Exempt in the hands of shareholders 9
Budget Highlights & Tax Proposals
Industry expectations Increased thrust on infrastructure Measures to boost private participation Digital industry Greater incentive for digital transactions and fiscal measures to be introduced for e-commerce Budget 2018-19 GST regime More liberalized reforms Reduction in corporate & individual tax rates Greater leeway to Financial services sector, as most impacted by recent Government initiatives Incentives for MSMEs 11
Key thrust areas/ policy initiatives Boost to MSMEs Continued focus to drive infrastructure sector Introduced world s largest healthcare Programme for vulnerable families Focus on employment generation and social security measures Policy for hybrid instruments for startups and venture capitals Impetus to International Financial service centre Increased rural outlays (MSP) 12
Key Corporate Tax Proposals Concessional Tax Rate: Companies with total turnover of less than or equal to INR 250 crores (Euro 31 Million) in FY 2016-17 taxable at 25%. Cess increased from 3% to 4% Long Term Capital Gain: Exemption withdrawn on LTCG on sale of equity shares or equity oriented units. 10% LTCG tax has been introduced Prosecution for failure to furnish return of income: Prosecution shall lie against companies for non-filing of return, whether or not any tax is payable. E-assessment: Government notified a new e-assessment scheme for assessment being done in electronic mode. The definition of business connection has been expanded to align with modified PE rules as per MLI and OECD BEPS Action Plans. Significant Economic Presence included (revenue based/user based tests introduced) along with including Digital presence in India 13
Allocation to Various Sectors Digital Media Allocation for the Digital India programme doubled to 0.38 Billion Telecom Sector Allocation of 1.22 Billion to create and augment telecom infrastructure Education Allocation of 12.3 Billion for development of Educational Sector in the next four years Health Industry Allocation of 0.15 Billion for world s largest government healthcare programme 14
Reaction of the Indian Industry The FM has presented a Budget which is both balanced and positive. Focus on rural infrastructure, agricultural output and farmer income will help reduce the agrarian distress and boost the rural economy T V Narendran, CEO & MD Tata Steel India Limited. Although India s overall economy is growing, Mr. Modi and his governing Bharatiya Janata Party have been trying to find ways to court the population left behind The New York Times The world's largest government's funded healthcare program - National Healthcare Protection Scheme (NHPS) announced by our FM, with approximately 500 million beneficiaries, an insurance scheme of up to INR 5 lakh per family per year for secondary and tertiary care hospitalization is a welcome move not just to maintain a healthy India but this I believe will also create several lakh/s new jobs in the country Anthony Jacob, CEO, Apollo Munich Healthcare Insurance 15
Other considerations
New direct tax legislation Constitution of Task Force for drafting a New Direct Tax Legislation 17
Combating tax avoidance GAAR MLI (India and Switzerland shall be CTAs) Amendments to Mauritius, Singapore Treaty 18
A New-Age Tax Administration Technology led transformation and Exchange of Information 19
Watch out For General Elections 2019: Impact on Reform pace!! 20
Questions & Answers
Thank you Gaurav Mehndiratta KPMG Leader: India-Swiss Corridor Partner, International Tax & Regulatory KPMG in India T : +91 (120) 386 8707 M: +91 98117 55379 E: gmehndiratta@kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logoare registered trademarks or trademarks of KPMG International.