As Govt completes 2 years of its term, there are discussions on pace of reforms considering expectations which were set when the Govt came to power. It will be fair to conclude that reforms have been progressive a particularly keeping in mind majority at Centre but not so much at Rajya Sabha level. Reforms in roads, railways and real estate are happening at gradual level. Recent formulation of Bankruptcy law is a major reform and will create confidence amongst lenders in particular foreign lenders.

Let's look at how Govt has scored on tax reforms.

On Taxation front, the approach of Govt and Apex Body Central Board of Direct taxes (CBDT) has been pragmatic and make tax law simple and easy to administer. Whereas the approach of the prior Govt was to make changes in taxation from one Finance Bill to other and that too, the approach was secretive, the current Govt has portrayed transparency and made changes on a regular basis either by a notification or Circular or appointing Tax committees to get results on time bound basis. Accordingly, number of initiatives have been taken in last 12-18 months.

Some important tax developments and initiatives are discussed and summarised below.

- A P Shah Committee report on removal of Minimum Alternate Tax ( MAT) for foreign companies and FPIs was implemented and that has provided a much needed certainty to foreign investors.

- Reforms path to simply income tax law by promising to reduce corporate tax rate from 30% to 25% over 4 years with a corresponding phasing out of incentives. This brings stability and predictability in tax law.

- Setting up of Easwar Tax Reforms Committee to simply and rationalise income tax law. Whereas some policy suggestions like Section 14A disallowance have been incorporated and will reduce past tax litigation on this count, the Govt should think of implementing other suggestions sooner than later, particularly with respect to simplifying and rationalising tax administration. These are discussed later.

- Govt's decision not to appeal against Shell and Vodafone transfer pricing matter was a bold move and created positive impact on foreign investment climate.

- Introduction of Advance Pricing Agreement (APA) mechanism and with pragmatic approach, APA authorities have  successfully implemented APA orders in last 1 year and this has created confidence and certainty on transfer pricing matters.

- on Tax litigation front, Finance Ministry and CBDT also formulated guidelines on Tax Department appeal process for appeal to higher level authorities and Courts. There are guidelines on monetary limits below which Tax Department will not appeal and recurring tax litigation which will be avoided going forward. This is showing positive signs on reducing tax litigation in the country. Considering these, Tax Tribunals have been quick in resolving some of the past litigation cases. Also the orders issued by Dispute Resolution Panel this year have been objective and refreshing and will reduce tax litigation going forward.

- Finance Act 2016 introduced strategies on Tax Dispute Resolution Scheme, 2016 to close past tax litigations on indirect tax transfer (like Vodafone and Cairn tax cases), past assessments and CIT appeals  and also introduce Income Declaration Scheme, 2016 to address domestic tax litigation measures for past years. These are welcome moves and should help reduce tax litigation.

- Taxation of indirect transfer has been a sour point in international taxation in India and has adversely impacted foreign investment climate - particularly the retro tax amendment of 2012 on this issue. Whereas litigation on past cases continue and hopefully will be resolved amicably, the Govt and CBDT have been very active on minimising these disputes going forward. In this regard, CBDT has released draft rules on valuation, attribution and reporting requirements on 23rd May, 2016 and also invited comments and suggestions from stakeholders and public by 29th May , 2016. This portrays transparent and inclusive approach.

- The last one is renegotiation of Protocol to amend India-Mauritius Tax treaty on 10th May, 2016 - this provides 'grand fathering' of past investments from capital gains tax and introducing capital gains tax after April 1, 2017 coinciding with GAAR and in line with Govt's commitment on OECD/G20 BEPS project where India has been a significant contributory.

UNFINISHED AGENDA:

Though the Govt and CBDT have done a good job of Tax reforms over last 2 years, there are still unfinished agenda which could be taken into consideration.

- The Easwaran Committee in its first report has made several recommendations on both changes in the Income tax Act as well as recommendations to promote ease of doing business and simplify procedures.

Some of these could be implemented through administrative clarifications or by issuing Circulars. These relate to TDS simplification, transparency in tax administration by use of E-Governace, system issues, adjustment of refunds, amendment of Return of Income to provide column for making disclosures, etc.

- Re-negotiations of Tax Treaties like Singapore, Cyprus, Netherlands to make it consistent and in line with BEPS recommendations on curbing Treaty abuse.

- GAAR is likely to be a reality from FY 2017-18 (AY 2018-19). This should be in line with global GAAR provisions. More important, in line with non-adversarial approach of Tax dept, the rules on implementation of GAAR may be published sooner than later and public and relevant stakeholders comments may be taken in time. Also the GAAR panel should consist of outside independent professionals when constituted.

- In line with phase out of various incentives and deductions, it is equally important to remove or phase out MAT provisions.

- Implementation of GST reform is stuck due to political non-consensus. All political parties (including Congress) need to support the Govt in its implementation. Hopefully, Govt will be able to obtain requisite majority in Rajya Sabha and get GST Bill passed in monsoon session of parliament. This will be a significant reform which can increase GDP growth by 1-2% just by synergies and right implementation.

Overall, the approach of Govt and CBDT has been to provide certainty, stability, simply the tax law and portraying 'non-adversarial tax' approach. The Govt and CBDT deserve compliments both on tax policies and administration over last 2 years.

(Contributed by Uday Ved, CA)