‘Will review tax treaties with nations having big companies in India’

SUSHIL CHANDRA, chairman, Central Board of Direct Taxes

NEWDELHI: India will renegotiate tax treaties with countries having companies with significant economic presence in India in its effort to tax the digital economy but will restrict the scope to cover only large entities, said Sushil Chandra, chairman of central board of direct taxes (CBDT). In an interview, Chandra said proposals in budget FY19 seek to add more taxpayers, make taxation more equitable and fair, reduce arbitrage among asset classes and boost manufacturing. Edited excerpts:

Finance bill 2018 has introduced the concept of significant economic presence to tax offshore firms offering digital services to Indian customers. What will be threshold based on which the provisions will come into effect?

Earlier, taxability of offshore firms was linked to their physical presence under the concept of permanent establishment (PE) (which is articulated in tax treaties). In this budget, we have said significant economic presence will also constitute a PE. But that is only an enabling provision. On this basis of this provision in domestic law, we can negotiate tax treaties with other countries.we are not looking to tax minor economic activity. Most of the big companies have significant user base and India, with its large population, contributes to the revenues of the big global digital companies. And we want them to be taxed. We will decide on how much economic presence—depending on the number of users, depending on the amounts involved. We will look at renegotiating treaties with all countries with companies enjoying a significant economic presence in India.

What are the some of the important changes that have been introduced in the finance bill?

We have brought in amendments to ensure we can file prosecution against companies that do not file their tax returns.

We have also said that profit-linked deductions will not be available to those entities that do not file their tax returns on time.

We have also made permanent account number (PAN) mandatory for non-individuals for transactions aggregating to more than ₹2.5 lakh a year. We have also introduced changes in law to make sure charitable or religious trusts or institutions deduct tax at source while making payments above a threshold.

No second thoughts on the proposed longterm capital gains tax on equities?

No question. We want the tax system to be fair and equitable among classes of taxpayers and among classes of assets. Long-term gain from property is already taxed at 20%. While hard working salaried persons get taxed at 5-30%, long-term capital gain from equities of ₹3.57 lakh crore was not taxable last year. This calls for taxation. Besides, the tax exemption had led to abusive practices, which needed to be addressed. The proposed 10% tax on long-term capital gain on equities is applicable only if the gain is above ₹1 lakh. Also, the gains made on investments up to January 31 are not taxable.