TAXATION NEWS

ANALYSIS

Presented by:
1807 - Anisha Rodrigues
1817 - Fabian Dsouza
1827 - Liza Dmello
1837 - Nikhil Colaco
1847 - Sahil Kathrotiya
1857 - Swarangi Sawant
 22nd January, 2024
 175 BIG MNCS' UNITS GEAR UP FOR NEW GLOBAL MINIMUM TAXES, REVIEW
RULES
The article discusses the upcoming implementation of Pillar Two of the BEPS 2.0 plan in India,
which aims to set a global minimum tax rate of 15% for large multinational enterprises (MNEs).

What is Pillar two regulation: Pillar Two of the BEPS 2.0 project addresses the development of
global minimum tax rules with the objective of ensuring that global business income is subject to at
least an agreed minimum rate of tax regardless of where they are headquartered or the jurisdictions
they operate.

Key points:
 Around 175 arms of multinationals operating in India will be impacted by the new
regulations.
 India might introduce Pillar Two provisions in the upcoming budget (February or July 2024).
 Most large Indian MNEs won't incur additional taxes due to the existing corporate tax rate
above 15%.
 The focus of Pillar Two is on preventing profit shifting by MNEs.
 Several countries (Austria, Denmark, etc.) have already enacted final Pillar Two legislation.
 Others (Canada, Norway, etc.) have introduced draft legislation.
 Low-tax countries are also adopting corporate income taxes to comply with Pillar Two.
SOURCE – The Economics Times

REMARKS –
 The implementation of Pillar Two represents a significant change in international tax rules
and aims to address tax avoidance by MNEs. Pillar Two is a major change in international tax
rules and MNEs need to be prepared for compliance.
Sector affected: All MNC’s in India.
 22nd January, 2024
 INSURERS' INTERMEDIARIES GET I-T NOTICES UNDER BENAMI LAW OVER
ALLEGED FUND ROUTING VIOLATIONS
What is the Benami law?
 It prohibits benami transactions, where a property or asset is held in the name of one
person (benamidar) but the real beneficiary is another. This law is used to combat tax
evasion, money laundering, and other financial crimes.
 The Benami Transactions (Prohibition) Amendment Act, 2016, is looking closely at
insurance companies and their agents because they are said to be breaking the rules by
sending inflated fees through middle-men.
Important points:
 The IT department's notices under the Benami Act are sent to organisations that have
already been assessed under other parts.
 It is thought that insurers are giving agents fees that are above and beyond what is
allowed by law through middlemen.
 "Benamidars" (intermediaries) hide the "real beneficiaries" (operators).
 By doing this, insurance can get around fee caps and sell more products.
 The GST department also looked into claims for input tax credits that were connected to
these deals.
 Benami law issues make already complicated court cases even more difficult to
understand.
 Instead of setting limits on each fee, the new IRDAI rules that go into effect in 2023 to
cap all managing costs.
 Overall, the benami angle makes it more likely that past commission tactics in the
insurance business will be challenged in court

SOURCE - The Economics Times

REMARKS –
Analysis
 Legal proceedings: The IT department and GST authorities may pursue legal action against
insurance companies, agents, and intermediaries based on their findings.
 Regulatory changes: This incident could lead to stricter regulations and enforcement
measures regarding insurance commissions and benami transactions.
 Industry reforms: The insurance industry may be pressured to adopt more transparent and
ethical practices to maintain public trust.
Primary sector:
 Life Insurance: The article specifically mentions inflated fees to agents through middlemen,
suggesting life insurance as the primary sector impacted.

Secondary sectors:
 Insurance Intermediaries: Agents, brokers, and other intermediaries who are suspected of
receiving and hiding inflated fees through benami transactions will be directly affected.
  Financial Intermediaries: Middlemen or financial institutions facilitating the benami
transactions could also face scrutiny.

22nd January, 2024

 TELECOME SECTOR INTERIM BUDGET WISHLIST
1. The telecom industry wants tax relief in the upcoming FY25 interim budget to ease
financial constraints in 5G rollouts. They key demands are:
2. Get rid of or temporarily stop the Universal Service Obligation Fund (USOF) tax: This
5% levy should be gotten rid of or temporarily stopped until its 77,000-crore fund is used
up.
3. The Universal Service Obligation Fund (USOF) is a government-backed initiative in
India aimed at bridging the digital divide and ensuring access to affordable
telecommunication services for everyone, particularly in underserved and remote rural
areas.
4. Make the meaning of Gross Revenue (GR) clearer: For licence fee reasons, income from
actions that don't require a licence shouldn't be counted towards GR.
5. Lower the licence fee to 1%: Slash it from 3% to just meet the costs of running the
business.
6. Expand the business loss carry-forward in terms of direct taxes: Under Section 72 of the
Income Tax Act, the time limit should be raised from 8 to 16 years.
7. Service tax should not be charged on rights to use natural resources: Given by the
government or the people in charge of growth.
8. Lower or get rid of the tax on telecom equipment: Reduce gradually from 20% to zero,
based on how well products can be made in the United States.
9. Let the GST not be charged on licence fees, frequency fees, and purchase fees: Make it
easier for telcos to pay their bills.
SOURCE – The Economics Times

REMARKS –
 The telecom sector's Wishlist raises valid concerns about financial constraints and their
impact on 5G rollout. Carefully evaluating these demands and finding a balanced approach
could benefit both the industry and India's digital growth ambitions
Sector Affected: Telecommunication
 23rd January, 2024
 IPMA: INCREASE PAPER, PAPERBOARDS IMPORT DUTY TO 25% IN BUDGET NEW
DELHI
Domestic paper and paperboard manufacturers have demanded a hike in import duty to 25% on
paper products and the imposition of a quality control order in the upcoming budget to
discourage cheap inward shipments. The Indian Paper Manufacturers Association (IPMA) said
that in its pre-budget submissions to the government, it has urged for increasing the basic
customs duty on the import of paper and paperboard from 10% to 25%

SOURCE – MINT

REMARKS –
1. Import Duty Increase: Domestic paper and paperboard manufacturers, represented by
the Indian Paper Manufacturers Association (IPMA), are calling for a significant hike in
import duties. The proposal is to raise the duties to 25% on paper products.

2. Quality Control Measures: Alongside the increase in import duties, the manufacturers
are advocating for the implementation of a quality control order. This measure aims to
ensure that imported paper and paperboard meet certain quality standards.

3. Pre-Budget Submissions: The IPMA has formally presented these requests in its pre-
budget submissions to the government. This indicates a proactive approach by the
association in addressing industry concerns and seeking regulatory support.

4. Discouraging Cheap Imports: The primary objective behind these proposals is to

discourage the entry of inexpensive imported paper products into the domestic market.
This move is likely driven by a desire to protect the interests of local manufacturers and
promote a level playing field.

5. Specific Duty Adjustment: The specific request is to increase the basic customs duty on
the import of paper and paperboard from the existing rate of 10% to the proposed rate of
25%. This adjustment is seen as crucial for maintaining the competitiveness of domestic
producers.
 23rd January, 2024
 NET DIRECT TAX COLLECTION RISES BY 160% TO ₹16,63,686 CRORE IN 10
YEARS
Central Board of Direct Taxes, on Tuesday, released a new report revealing that the country’s
net direct tax collections have increased by 160.52 per cent from ₹6,38,596 crore in 2013-14
to ₹16,63,686 crore in 2022-23. Official data further revealed that the income tax department
is allocating increased resources to the collection of direct taxes, despite a substantial rise in
the number of taxpayers. This trend suggests a growing reliance on advanced technology and
enhanced compliance measures. The cost of collection has seen a decline from 0.57% of the
total collection in the fiscal year 2013-14 to 0.51% in the fiscal year 2022-23. In 2000-01, the
cost was notably higher at 1.36% of the total collections but has consistently decreased over
the years.In the fiscal year 2022-23, gross direct tax collections amounted to ₹19,72,248
crore, marking a remarkable surge of over 173.31 percent compared to the corresponding
figure of ₹7,21,604 crore recorded in 2013-14. Direct taxes encompass both personal income
tax and corporate tax.The direct tax to GDP ratio witnessed an ascent from 5.62 percent in
2013-14 to 6.11 percent in 2022-23. Simultaneously, the cost of tax collection has
diminished, decreasing from 0.57 percent of the total collection in 2013-14 to 0.51 percent of
the total collection in 2022-23.Notably, the total number of Income Tax Returns (ITRs) filed
in FY 2022-23 stands at 7.78 crore, indicating a substantial increase of 104.91 percent
compared to the total number of ITRs filed in FY 2013-14, which was 3.80 crore.
SOURCE – MINT

REMARKS –
1. Significant Increase in Net Direct Tax Collections: The report from the Central Board
of Direct Taxes highlights a substantial growth in India's net direct tax collections,
witnessing a surge of 160.52% from ₹6,38,596 crore in the fiscal year 2013-14 to
₹16,63,686 crore in the fiscal year 2022-23.
2. Resource Allocation and Technology Adoption: Despite a notable increase in the
number of taxpayers, the income tax department is allocating more resources to the
collection of direct taxes. This suggests a growing reliance on advanced technology and
enhanced compliance measures to manage the higher volume of taxpayers efficiently.
3. Decline in Cost of Collection: The cost of collecting direct taxes has seen a decline from
0.57% of the total collection in the fiscal year 2013-14 to 0.51% in the fiscal year 2022-
23. This indicates improved efficiency in tax collection processes and cost management
over the years.
 4. Surge in Gross Direct Tax Collections: The fiscal year 2022-23 witnessed a remarkable
surge of over 173.31% in gross direct tax collections, amounting to ₹19,72,248 crore,
compared to ₹7,21,604 crore recorded in 2013-14.
5. Direct Tax to GDP Ratio Growth: The direct tax to GDP ratio has shown an upward
trend, increasing from 5.62% in 2013-14 to 6.11% in 2022-23. This indicates a growing
contribution of direct taxes to the country's GDP.

23rd January, 2024

 DIRECT TAX-GDP RATIO RISES TO 15-YEAR HIGH OF 6.11% DURING FY23,
SHOWS DATA
The share of direct taxes in gross domestic product (GDP) rose to a 15-year high of 6.11 per
cent during 2022-23 (FY23), but their buoyancy fell to 1.18 from 2.52 in the previous year,
according to official data released on Tuesday. This means that while the tax-to-GDP ratio
registered a record high during FY23 since 2008-09, the economic growth at current prices
could not result in as high a rise in direct tax collections during the year as witnessed during
2021-22 (FY22). However, direct tax collections rose higher than economic growth during
FY23. While nominal GDP rose 15.11 per cent during the year, direct tax collections rose
17.79 per cent, revealed data released by the Central Board of Direct Taxes. A year earlier,
nominal GDP grew by 19.51 per cent, but direct tax collections rose by 49.12 per cent. Thus,
direct taxes grew at a rate which was 2.52 times the GDP growth rate in nominal terms.
Direct taxes rose by 160.52 per cent to Rs 16.64 trillion during the concluding year of the
Narendra Modi government 2.0 (2022-23) over Rs 6.38 trillion during the last year of the
Manmohan Singh government 2.0 (2013-14).
Direct tax buoyancy again falls sub-2% in 2022-23. On the other hand, gross direct tax
collections registered an increase of more than 173 per cent at Rs 19.72 trillion during FY23
over Rs 7.22 trillion during 2013-14 (FY14). Direct taxes contributed 54.62 per cent to the
overall tax kitty during FY23 against 52.27 per cent in the previous year. However, this share
was higher at 56.32 per cent during FY14.
SOURCE – Business Standard

REMARKS –
1. Significant Increase in Net Direct Tax Collections: The report from the Central Board
of Direct Taxes highlights a substantial growth in India's net direct tax collections,
witnessing a surge of 160.52% from ₹6,38,596 crore in the fiscal year 2013-14 to
₹16,63,686 crore in the fiscal year 2022-23.
2. Resource Allocation and Technology Adoption: Despite a notable increase in the
number of taxpayers, the income tax department is allocating more resources to the
collection of direct taxes. This suggests a growing reliance on advanced technology and
enhanced compliance measures to manage the higher volume of taxpayers efficiently.
 3. Decline in Cost of Collection: The cost of collecting direct taxes has seen a decline from
0.57% of the total collection in the fiscal year 2013-14 to 0.51% in the fiscal year 2022-
23. This indicates improved efficiency in tax collection processes and cost management
over the years.
4. Surge in Gross Direct Tax Collections: The fiscal year 2022-23 witnessed a remarkable
surge of over 173.31% in gross direct tax collections, amounting to ₹19,72,248 crore,
compared to ₹7,21,604 crore recorded in 2013-14. This reflects a substantial increase in
the overall tax revenue generated.

24th January, 2024

 DIRECT TAX TO GDP RATIO HITS A ALL TIME HIGH IN 2 DECADES…
In Fiscal Year 2023 (FY23), the Direct tax revenue as a share of Gross Domestic Product (GDP)
reached a record 6.1%, marking the highest since the 2000-01 financial year. The Central Board of
Direct Taxes (CBDT) reported a substantial increase in tax collections and a rise in the number of
taxpayers. The net direct tax receipt for the Centre, after adjusting for tax refunds, surged by about
161% from FY14 to ₹16.63 trillion in FY23, with contributions from both corporate and personal
income tax payers.

The data revealed a positive trend in the participation of women in financial activities, with the share
of women holding Permanent Account Numbers (PAN) rising to 41% by March 2023, compared to
37.2% in March 2019. Women aged 20-40 accounted for a significant portion of all PAN numbers
issued. The total number of PANs issued increased, reaching 272.4 million for women and 390.2
million for men by March 2023.

The direct tax-to-GDP ratio, which was 5.62% in FY14, steadily increased to 6.1% in FY23,
indicating a broadening tax base as more economic activities transitioned into the formal sector. The
number of income tax returns filed more than doubled from 38 million in FY14 to 77.8 million in
FY23. The cost of direct tax collection decreased from 0.57% of total tax collection in FY14 to 0.51%
in FY23 due to increased use of data analytics and technology in tax administration.
SOURCE – Business Standard

REMARKS –
1. Increased Government Revenue: A higher direct tax to GDP ratio implies that the
government is collecting more revenue through direct taxes. This increased revenue can be
used to fund government expenditures, including infrastructure development, social
programs, and other public services.
2. Reduced Disposable Income: Higher direct taxes can lead to reduced disposable income for
individuals and businesses. This may affect consumer spending and investment decisions,
potentially impacting economic growth.
3. Progressivity and Redistribution: Direct taxes are often progressive, meaning that
individuals with higher incomes pay a higher percentage of their income in taxes. A higher
 direct tax to GDP ratio may indicate a more progressive tax system, which can contribute to
income redistribution and reduce income inequality.
4. Impact on Economic Growth: Excessive taxation, especially if it disproportionately affects
businesses and high-income individuals, may have negative effects on economic growth. It
could discourage investment, entrepreneurship, and innovation.

25th January, 2024

 CII, FICCI SUGGEST ALTERNATIVE SYSTEM TO RESOLVE TAX DISPUTES
The Confederation of Indian Industry (CII) and the Federation of Indian Chambers of
Commerce and Industry (Ficci) on Wednesday asked the government to support growth by
bumping up capex, continuing the Production Linked Incentive (PLI) schemes and extending
the benefits of concessional tax regime beyond March 31.
The industry bodies suggested simplifying rationalising the GST and TDS regimes to ease the
compliance burden
SOURCE – The Economic Times

REMARKS –

1. Increased capex and continued PLI schemes can encourage manufacturers (labour
intensive sectors) to invest and expand production, potentially leading to job creation
and economic growth.
2. Simplifying and rationalising the Goods and Services Tax (GST) and Tax Deducted at
Source (TDS) regimes could reduce compliance costs for businesses, improve tax
collection efficiency, and boost formalisation of the economy. However, Increased
capex and extending tax benefits could widen the fiscal deficit, putting pressure on
government finances and potentially leading to higher inflation or interest rates.
 25th January, 2024
 INDIA’S FREE TRADE TALKS WITH UK, EU MAY LEAVE OUT CARBON TARIFF
 India’s free trade talks with the UK and European Union (EU) may skip teh vexed
carbon tax matter in an attempt to fast track the trade deals.
 The absence of any agreement on the carbon border adjustment mechanism (CBAM)
casts a cloud over Indian steel exports to the region, as it would raise the cost of
exports and eat into profits. India is negotiating separate free trade agreement (FTAs)
with the UK and EU.
 The EU ‘s CBAM, and a similar policy of the uk ,seek to levy a carbon tax on imports
into the region of iron and steel, aluminium, cement, ceramics, fertilisers ,glass and
hydrogen from January 2026.
 Indian steelmakers have been lobbying the government to seek concessions on
CBAM as part of the ongoing FTA discussion.

SOURCE – MINT

REMARKS –
1. The carbon border adjustment mechanism (CBAM) could significantly increase the
cost of exporting steel to the EU and UK. This is because Indian steel companies
would have to pay a tax based on the difference between the carbon price in India and
the higher carbon price in the EU/UK. This could make Indian steel less competitive
in these markets and lead to a decline in exports.
2. Trade and investment could create jobs initially, but future job losses in the steel
sector might occur due to CBAM. Increased exports from FTAs could initially
improve the trade balance. However, future CBAM implementation might negatively
impact this balance if steel exports decline.
 26th January, 2024
FINANCE MINISTRY RAISES IMPORT DUTIES ON GOLD AND SILVER, TARGETS TAX
ADVANTAGE

Import duty on gold and silver findings and coins of precious metals will now be 15%
- MINT, 23rd January, 2024

 INDIA COMMERCE MINISTRY BACKS IMPORT TAX CUTS ON GOLD BARS –

OFFICIALS
India's commerce ministry has backed a long-standing demand from the jewellery industry to
reduce import tariffs on gold bars, government and industry officials said, amid concern the
duties were further harming the country's faltering jewellery exports. The commerce ministry's
support for lowering the tariffs comes ahead of the federal budget due next week. The Gems and
Jewellery Export Promotion Council has urged the government to reduce import tariffs on all
types of gold to 5% from 15%, and lower the customs duty on cut and polished diamonds, to
reduce costs for India's jewellers. "India's customs duty on gold is among the highest globally,"
said Vipul Shah, chairman of the GJEPC. Lower costs would help the viability of India's large
gold and diamond jewellery processing industry and help exports, the trade ministry official said.
3 million and accounts for more than 10% of India's goods exports - saw a 16% fall in exports for
April-December 2023 compared with the same period a year earlier, according to commerce
ministry estimates. Theres a risk, a cut in the gold import duty could increase this propensity to
consume gold and put pressure on India's trade deficit, said Madhavi Arora, economist at Emkay
Global Financial Services.

SOURCE - MINT

REMARKS –

 Reduce in import tax of gold will boost exports and reduce imports through illegal channels.
 Gold imports rose by 25% to nearly $36 billion in spite of increase in tax from 10% to 15%
in 2023, reflecting strong local demand. So, there’s a risk, a cut in the gold import duty could
increase this tendency to consume gold and put pressure on India's trade deficit.
 26th January, 2024
 GIFT LISTING BENEFICIAL FROM TAXATION AND CURRENCY RISK
PERSPECTIVE FOR GLOBAL FUNDS
For investors looking to pick up stakes in Indian companies, the new framework offers
significant tax savings. This is because capital gains arising out of transfer of equity shares of
companies listed on the IFSC exchanges are exempted from tax. IFSC route will reduce currency
risk and also help save on various capital market taxes — such as securities transaction tax and
stamp duty — levied on onshore trades. This will encourage overseas investors and non-resident
Indians (NRIs) to look at GIFT City as a potential investing.
SOURCE - The Economics Times

Direct Tax:
 100% tax exemption for 10 consecutive years out of 15 years
 MAT / AMT @ 9% of book profits applies to Company / others setup as a unit in IFSC.
MAT not applicable to companies in IFSC opting for new tax regime (Current MAT is 15%
on booked profit to companies)

Indirect Tax:
 No GST on services received by unit in IFSC
 GST applicable on services provided to DTA.
(Domestic Tariff Area means the whole of India but does not include the areas of the Special
Economic Zones.)
 No GST on transactions carried out in IFSC exchanges

Investors:
 Interest income paid to non- residents on monies lent to IFSC units not taxable. Interest on
Long Term Bonds and Rupee Denominated Bonds listed only on a recognised stock
exchange in IFSC: (1) Issuance before 01 July 2023 - Taxable at a lower rate of 4% (2)
Issuance on or after 01 July 2023 - Taxable at a rate of 9%
 Income received by a non-resident from a portfolio of securities or financial products or
funds, managed or administered by any portfolio manager on behalf of such non-resident, in
an account maintained with an Offshore Banking Unit of an IFSC, to the extent such income
accrues or arises outside India is exempt from tax and is not deemed to accrue or arise in
India.

Other Tax Incentives:

 State Subsidies – Lease rental, PF contribution, electricity charges.
  Exemption from STT (Securities Transaction Tax), CTT (Commodities Transaction Tax),
stamp duty in respect of transactions carried out on IFSC exchanges.

REMARKS –
 Reduced currency risk in global funds may lead to more stable currency markets, as investors
are less concerned about exchange rate fluctuations when making cross-border investments
 If more investors choose global funds due to tax benefits and reduced currency risk, it could
result in increased capital flows across borders, potentially contributing to global economic
growth and increase in competition.
27th January, 2024
 MOBILE TOWER FIRMS SEEK INPUT TAX CREDIT, RATIONALISATION OF TDS.
1. The Digital Infrastructure Providers Association (DIPA), representing telecom
infrastructure providers, has urged the finance ministry for the release of input tax
credit (ITC) and the rationalization of tax deducted at source (TDS) provisions in the
upcoming budget.
2. DIPA emphasized the need for government support in making ITC available for
telecom towers, citing accumulated ITC on GST paid for imports and domestic
reverse charge.
3. Currently, telecom infrastructure is excluded from claiming ITC.
4. DIPA also called for an increase in the tax depreciation rate on batteries for industrial
use to 65%, up from the current 15%, and a rationalization of TDS provisions on
electricity or diesel purchases.
5. The industry seeks supportive policies, simplified regulations, and GST norms to aid
telecom infrastructure development, aiming to ease the business environment and
encourage long-term growth.
6. The denial of ITC has led to numerous litigations, and industry insiders attribute
consolidation in the sector to cost pressures arising from an untenable tax regime.
7. Recently, Brookfield Asset Management announced plans to acquire the Indian
business of American Tower Corporation for $2 billion.

SOURCE – Business Standard

REMARKS –
Micro level:
 If the demands of the Digital Infrastructure Providers Association (DIPA) are met, it could
enhance the competitiveness of telecom infrastructure providers. The release of Input Tax
Credit (ITC) and rationalization of Tax Deducted at Source (TDS) provisions would likely
reduce financial burdens, encouraging healthy competition within the industry.
 A thriving telecom infrastructure sector can contribute to job creation and skill development.
As the industry grows, there would be an increased demand for skilled workers, positively
impacting employment rates in related sectors.
Macro level:
 Implementing supportive policies may lead to increased economic activity within the telecom
sector, translating into higher tax revenues for the government. The release of ITC and
rationalization of TDS provisions could positively impact government fiscal policies.
 Favourable policies and a supportive budget can enhance the perception of the country as an
attractive destination for foreign investments in the telecom sector. This positive global
perception can lead to increased foreign direct investment (FDI) in the industry.