MUMBAI: The unbridled freedom and powers given to tax authorities in this year's Budget could spark a furious face-off in the coming months between companies determined to protect their profits in a slowing economy and an equally resolute tax department eager to wrest every last bit of revenue, experts warn.
Last Friday's Union Budget, which increased taxes and gave almost limitless powers to the tax department to check evasion and increase tax collection, has been widely criticised for its excessive focus on increasing revenue and ignoring the damaging aftereffects, higher litigation and messy court room battles.
Tax officials, once the Budget is passed, will have powers to check all transactions between companies and its subsidiaries, affiliates, investors and foreign partners for tax eligibility. The result, experts warn, will be a sharp increase in costs, compliance and litigation.
"It is a back door entry to anarchy," rued Daksha Baxi, executive director at Khaitan & Co, a law firm that represents many business conglomerates in India. "The tax department can now open all deals that have happened in the past six years. Why a buyer should be penalised because you (government) were not sure. There are so many transactions," she added.
Some Budget proposals will empower tax officials to revive tax demands on marquee deals of the past six years, routine transactions such as purchase of computer software and inter-corporate transactions for purchase of raw materials within business houses. It will ignite a sprawl of litigation as taxmen draw up conclusions to earn additional tax revenue that corporates will naturally challenge at various legal forums made available to them.
Under the new amendments proposed in the Budget, the assessing officer will now be armed with powers to question the value of inter-group transactions, but the fear is that it could be done in an arbitrary manner, mostly at the discretion of the assessing officer.
An immediate result of the new law is that the companies are now bound to maintain proper documentation in support of the transaction value they claim in their returns. In short, there will be an increase in compliance burden.
The Member of Parliament Local Area Development Division is entrusted with the responsibility of implementation of Member of Parliament Local Area Development Scheme (MPLADS). Under the scheme, each MP has the choice to suggest to the District Collector for, works to the tune of Rs.2 Crores per annum to be taken up in his/her constituency.