india union budget 2017-18 - inclusive | independent · • legislation, its judicial...

India Union Budget2017-18

kpmg.com/in/budget2017

A Prospective

15 February 2017

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without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.

• The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

• Legislation, its judicial interpretation and the policies of the tax and/or regulatory authorities are also subject to change from time to time, and these may have a bearing on the comments that we have given. Accordingly, any change or amendment in the law or relevant regulations would necessitate a review of our comments/recommendations (if any) contained in this presentation. Unless specifically requested, we have no responsibility to carry out any review of our comments for changes in laws or regulations occurring after the date of this presentation.



Sukesh Kumar

Partner in charge, Canada India Practice, KPMG in Canada

Naveen Aggarwal

Partner in charge, India - Canada corridor with KPMG in India

Nilaya Varma

Partner, Infrastructure Government and Healthcare, Lead for Government and Healthcare, KPMG in India

With you today

Kasi Rao

President and CEO, Canada India Business Council



India – a bright spot in a subdued global economy

1.9% 4.5% 3.4%

Advanced economies

Emerging Economies

World Economy

GDP Forecast FY’17-18

7.0

6.7 –7.5

7.8

16-17 17-18 18-19

Emerging De-globalization

Shift from unconventional monetary policy

Uncertainty around

commodity prices

Slump in global growth



India – Canada: Transforming ties

Why India Matters?

Growing Canadian SME engagement across key sectors

in India

largest source country for foreign

students

2nd

Largest tradingpartner in

South Asia

Preferred destination for foreign capital &

technology for infrastructure development

IndiaOutbound

IndiaInbound

Technology

ENR

Industrial Manufacturing

Infrastructure

Real Estate

Technology

Cleantech

Education

Life Sciences

C$ 6.25 BnBilateral trade in

2015-16

Agrifood



India: a favored investment partner for CanadaAcross Marquee Programs Across key sectors

Make in India

BOMBARDIERGENERAL DYNAMICS

CAE

Digital India

BLACKBERRY

DATAWINDSOTI

Skill India

SENECASFU

BCITLANGARA

Hygiene infrastructure

CLEARFORDWATERSHED SENTINEL

Renewable Energy

SOLANTRO ECAMIONSKYPOWER GLOBAL

InfrastructureCaisse de depot et placement du quebec

IBIGROUPSNC-LAVALIN

CPP INVESTMENT BOARD

India Union Budget 2017Transform. Energize. Clean. India

GST



05 03

02

01

04

06

Low skill manufacturingKey to Employment generation

Rural economyGreater social distribution

RemonitizationQuick and inclusive

Demonetization Transitory adverse affect

Competitive sub federalismCentre to States to cities

Industrial growthPlateaued

Economic survey – Key takeaways



Key themes from the budget

016

Stimulating growth

Ease of doing business

Invigorating Infrastructure Transparency

Thrust todigitization



Infrastructure and Urbanization



Key Budget Highlights – Infrastructure & Urbanization

8%

Significantly increased budgetary allocations for railways, roads & highways

12%

• Government of India committed to invest as much as INR 3.96

trillion in creating and upgrading infrastructure in FY 2017-18

• Significant investments committed as part of largest-ever rail budget

• Affordable housing is now to be accorded infrastructure status

• Amendment of Airport Authority Act to enable monetization of

airport land

• An act underway for Dispute Resolution in PPP Infrastructure

Projects

The Headliners



Major Push to National Initiatives

• Abolishment of FIPB• Relaxation in FDI limits across sectors• Incentives for electronic manufacturing in India coupled

with all time high budgetary allocations for M-SIPS and EDF schemes

• Increase in spectrum availability and expansion of fiber optic network

• Increased investments in cyber security and Bharat-net (broadband for all)

A renewed impetus to manufacturing sector with host of incentives and lesser administrative hurdles for foreign investors

Newer avenues made available for investments in technology and digital infrastructure as a result of exponentially growing demand



• Increased coverage for Swachh Bharat Yojana(from existing 60%)

• Initiatives to provide safe drinking water• Investment in training and creation of health

and wellness centres

Government welcomes PPP investments in developing both hard and soft infrastructure to strengthen safety and sanitation ecosystem

• Several new initiatives announced in training sector such as SANKALP and SWAYAM

• Hiring of Education Financing Agency to assess SarvaShiksha Abhiyan's progress

Nation with largest youth population in the world calls for investments in skilling as well as assessment

Major Push to National Initiatives



Key Sector Initiatives – Railways & Aviation

• 3,500kms of railway lines to be commissioned in FY 2017-18• Listing of key railway public sector enterprises such as IRCTC, IRCON,

IRFC on stock exchange(s)• 7,000 stations to be solar powered• Railway safety fund with a corpus of INR 1 trillion to be established with

seed funding from Government• Redevelopment of 25 railway stations

• Amendment of Airport Authority Act to enable monetization of airport land• Operations and management of select airports in tier-II cities to be taken

up on PPP basis

Railways

Aviation

Initiatives across infrastructure sector is testimony to Government’s commitment to provide and enabling and inviting ecosystem for investors



Key Sector Initiatives- Roads, Energy, Ports & Shipping

• 2,000km of coastal road to be developed to facilitate hinterland connectivity with ports and accelerate development of coastal economic zones

• Allocation of INR 6 billion for Sagarmala Project – Integrated port modernization and development project

• Trade Infrastructure for Export Scheme (TIES), a central scheme with a focus on export infrastructure will be launched in FY 2017-18

• 100% village electrification by 2018• Increase in strategic crude oil reserves from 5.33 MMT to 15.33 MMT• Addition of 20,000 MW of solar energy under the second phase of Solar

Park Scheme• Announcement of formation of an integrated public sector oil company

Energy

Ports & Shipping

• Allocation of INR 649 billion for National Highways• 133kms of roads were constructed per day in 2016-17 against an average

of 73kms per day between 2011 & 2014

Roads & Highways

16© 2016 B S R & Co LLP, a LLP of Chartered Accountants, duly registered under the Limited Liability Partnership Act, 2008. All rights reserved.

Opportunities Galore

Increased avenues and

incentives for PPP investments in railways sector

Relaxation in norms and

regulation will boost FDI in infrastructure

Surge in real estate demand as affordable

housing becomes more

accessibleAviation industry

to harness benefits from

non-aeronautical revenue

Green energy continues to derive

humongous benefits and incentives

World class ports and logistics to form the backbone of

India’s ambitious plan to become a

South-Asian export hub

Increased thrust and opportunities for PPP in driving

key social initiatives



Key tax proposals



• CbC Reporting• Multinational

Anti –avoidance law

• CbC Reporting• Treaty renegotiation with

Singapore, Mauritius, Cyprus

• GAAR, PoEM, Equalization Levy

• Stricter enforcement of anti-avoidance measures

• CFC regime• Amended Thin

Capitalization Rules

• CbCReporting

• CbC Reporting• Diverted Profits

Tax

• Hybrid mismatches

• CbC Reporting

• CFC regime• Amended Thin

Capitalization Rules

• CbC Reporting

• CbC Reporting• Existing CFC,

Thin capitalization regime

• Automatic exchange of CbCreports

• Existing CFC, Thin capitalization regime

Global developments aligned to BEPS Action Plan



Improving Tax Competitiveness

Attractiveness for foreign capital

Tax certainty and ease of doing business

Tax transparency and convergence with global tax developments

Key focus areas

Tax Proposals – Key focus areas



• Model GST law released for public comments

• Official GST website launched & Step plan for GST registration rolled out

• GST Council to approve GST law on 18 February 2017 meeting; to be presented in Indian Parliament for ratification

• Government of India’s IT infrastructure geared up. 60,000 officers trained; industry outreach programme from April 2017

• Broad GST rate structure -5%-12%-18%-28%. Specific rates to be made public by March 2017

Will the Government meet the 1 July 2017 implementation date?

2017 – Year of Goods and Services Tax (GST)

GST – Game changer in tax reforms and business transformation



Improving tax competitiveness

Reduced corporate tax rates• Roadmap for gradual reduction of corporate tax rate in the past budgets• 25% corporate tax rate for less than ~ USD 7 million turnover in FY 2015-16

Rationalized Minimum Alternative Tax (MAT) provisions• Carry forward of MAT credit extended from 10 to 15 years, MAT adjustment for companies

following India AS

Easier Domestic Transfer Pricing (TP) norms• Scope of domestic TP reduced – now applicable only to related parties claiming profit linked

deduction

Does payment to related parties still need to be at arm’s length?

Carry forward of MAT credit lapsing in FY 17?

Eligibility of newly set-up company for 25% rate?



Attractiveness for foreign capital

Partial relief from indirect transfer taxation regime for FPIs• Exclusion for Category I and Category II FPIs on redemption of units/sale of investments by

investors

Exclusion of Category III FPIs, PE and VC investors needs rethink?

Rationalization of debt regime for foreign lenders• Lower tax withholding of 5% extended to Rupee Denominated Bonds (RDBs) – Masala

Bonds• No tax on transfer of RDBs between non–residents• Foreign Borrowings upto July 2020 now eligible

Fillip for debt investments in India?

Tax neutrality on conversion of stocks• No tax on conversion of Preference stock to Equity Stock

Impact on past litigation?



Tax certainty and ease of doing business

Focus on Foreign Direct Investment (FDI) regime• More than 90% of FDI inflow already under automatic route• Proposal to abolish FIPB in Financial Year 2017-18

Relaxed FDI norms in other sectors?

Strengthening tax dispute resolution framework • Common Authority for Advance Rulings (AAR) for tax matters• Increased pool of members - High Court judges can also preside over the AAR

Need for Additional AAR Benches?

Supporting Start ups in growth stage

• Conditions for carry forward of business losses relaxed• Eligible start-ups entitled to claim 100% tax holiday for any 3 out of 7 years from its date of

incorporation

Amendments helpful for existing unicorns?



New Proposals - aligned with global tax trends

Thin capitalization rules introduced Following BEPS Action Plan 4, disallowance of excess interest deduction by MNEs• Interest payouts to foreign AEs restricted to 30% of EBITDA• Carry-forward of disallowed interest permitted for 8 years• Applicable only if interest exceeds ~ USD 150,000• Implicit/explicit third party loans guaranteed by AEs

Secondary Transfer Pricing adjustments• Primary adjustments made to profits of Taxpayer (APA/ Safe Harbor, etc.) to result in

Secondary adjustments• Deemed ‘advance’ by the tax payer to AE – subject to notional interest• Not applicable if primary adjustment does not exceed ~ USD 150,000

Impact on expanded definition of AE?

Impact in case of Multiple AEs, difficulty in notional interest repatriation?



Other Proposals

Easier processing of refunds• Tax refunds to be processed even if case selected for scrutiny assessments • Stricter conditions on Tax Officer for withholding tax refunds

Proposal to end year on year tax refund adjustments?

Reduced time limits for tax assessments • Time limit for completion of assessment reduced from 21 months to 18 months for AY 2018-19

and to 12 months for subsequent years

Roadmap for e- assessments and limited scrutiny

Revitalizing the real estate sector

• Relaxed conditions for profit linked deduction for affordable housing developers

• Providing clarity on capital gains in case of Joint Development Agreements

Boost to affordable housing sector along with infrastructure status?



Other recent amendments - Open issuesGAAR to be effective 1 April 2017

• Recent GAAR Clarificatory Circular – Applicability of GAAR vs. Specific Anti-Avoidance Rules/ LOB clause in tax treaties/ Grandfathering of loan and leasing arrangements

Place of Effective Management (PoEM) – Final Guidelines notified

• Subjectivity continues in final guidelines• Challenges around compliance in Financial Year 2015-16• Lack of clarity on MAT/ Foreign Tax Credit/ Tax Withholding

Income Computation and Disclosure Standards (ICDS)

• Not deferred despite strong industry representations, increased compliance burden

Indirect Transfers

• Applicability of indirect transfer provisions to offshore corporate re-organizations



In summary a budget



Questions?

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

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