Seeking to soothe the nerves of foreign investors, Finance Minister Arun Jaitley today announced that a high-level committee will look into the controversial issue of payment of Minimum Alternate Tax (MAT) by FIIs.
"We have decided to refer this matter (of payment of MAT by FIIs) as well as few other tax issues, which are essentially legacy issues, to a committee headed by justice A P Shah, the chairman of the Law Commission.
"The Committee is requested to give its recommendation of the specific issues of MAT on FIIs expeditiously. The Government will consider the recommendation of the committee and take an appropriate decision as early as possible," he said while replying to a debate on the Finance Bill in the Rajya Sabha.
Following a decision of the Authority of Advance Ruling (AAR), Income Tax department slapped 68 notices on foreign portfolio investors saying they have to pay 20 per cent MAT totalling Rs 602.83 crore on untaxed capital gains made by them over the past three years. Some FPIs have approached the courts against the tax department.
Rejecting the demand for relaxing the norms for quoting of PAN for payments above Rs 1 lakh, Jaitley said the government has already issued 21 crore PAN cards and stressed "dealing in black money is not a fundamental right."
Moreover, he said, the government plans to launch a big campaign to expeditiously issue PAN cards.
The Upper House later returned the Bill, already passed by the Lok Sabh, thus completing the budgetray exercise for 2015-16.
"There is no panic situation" and people will get their PAN card, Jaitley said.
Elaborating on the tax policies, the Finance Minister expressed the government's commitment to provide certainty to the tax regime to attract investments, both domestic and foreign.
"In matter of taxation, the government is fully committed to the principle of certainty of taxation, avoidance of retrospectivity and providing an enabling environment to business and investment, both domestic and foreign. We will ensure that these principles are adhered to in letter and spirit," he said.
Once the difficulties experienced by the FIIs came to the notice of the government, Jaitley said, the government decided to do away with the MAT from the current fiscal.
"Naturally, when an exemption is given it takes a prospective effect. In view of the ruling given by the AAR in 2012, it was found not possible to provide a retrospective exemption from a prior date. Perhaps this matter should have been addressed in 2012.
"The affected party has subsequently gone to Supreme Court and the matter is pending in the Supreme Court.... On behalf of the government, it was conveyed to the Supreme Court that the government has no objection to an early hearing. We are also keen for an final settlement of the issue. It is expected that the Supreme Court will fix the an early hearing in this case," he added.
The Finance Minister also sought cooperation of the members of the Rajya Sabha, where the ruling NDA does not enjoy majority, to support the constitutional amendment bill for roll out of the Goods and Services Tax (GST) or else the April 1, 2016 deadline for its implementation would be missed.
These initiatives were necessary to send "right signals" to the investors as the country is still recovering from various difficulties, he said.
With regard to the proposal to set up a separate debt management office which has now been deferred by the government, Jaitley said "there was no conflict of interest between the Reserve Bank and the Government".
Most of the experts have suggested separation of the debt management office from the central bank, he said.
Jaitley also clarified that LPG subsidy and other welfare schemes to individuals would not be taxed as they were not business income.
On the issue of devolution of taxes to the states, he said they will get more and "obviously the money in centre's pocket will be less."
The 14th Finance Commission has increased the devolution to the states from 32 per cent to 42 per cent, he said, "there is not a single state which is not getting more."
While talking about GST, Jaitley said in a lighter vein that he would urge Derek O'Brien (Trinamool Congress), who wanted to know about the fate of the legislation, to convince Anand Sharma (Congress) to get the bill passed.
To this, Sharma said, "you (Jaitley) are enough to convince us."
Jaitley responded by saying, "I will be able to convince (Leader of Opposition) Ghulam Nabi Azad but I will need Derek to persuade Mr Anand Sharma."
Earlier, Minister of State for Finance Jayant Sinha said the budget has as many as "20 big-ticket high impact proposals".
These include proposal to reduce corporate tax from 30 per cent to 25 per cent, removal of wealth tax, setting up of MUDRA Bank and gold monetisation scheme.
"We are trying to build productive capacity of economy," he said, adding the effort is to boost supply side and focus on empowerment of people rather than entitlement.