kpmg flash news - the damodaran committee report

7/29/2019 KPMG Flash News - The Damodaran Committee Report

1/4

2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG InternationalCooperative (KPMG International), a Swiss entity. All rights reserved.

KPMG FLASH NEWS

KPMG IN INDIA

Damodaran Committee Report - key recommendations relating to tax and

regulatory aspects

20 September 2013

Background

The Ministry of Corporate Affairs (MCA) hadconstituted a committee in August 2012 under thechairmanship of Shri M.Damodaran, former Chairman,Securities and Exchange Board of India (SEBI) forreforming the Regulatory Environment for doingBusiness in the country.

The proximate cause of the establishment of theCommittee was the Word Banks Doing BusinessReport which ranked India amongst the countriesranked at the bottom of various sub-indices.

The committee conducted an in-depth study in theentire gamut of regulatory framework and prepared adetailed roadmap for improving the climate of businessin India. Easing of business environment mandatesextensive examination of regulations in different areasof root functioning such as financial reforms,governance reforms, liberalised policy framework,process reforms, etc.

The recommendations are classified broadly asfollows:

Legal reforms

Architecture of the regulatory space

Measures to boost efficacy of the regulatoryprocess

Improving business environment for micro, smalland medium enterprises

Addressing issues at the state level

The key recommendations relating to tax andregulatory aspects are as follows:

Time and cost involved in litigation in theabsence of tax officers taking cognizance ofrulings pronounced by higher authorities

Indian authorities have often claimed that

payment of taxes is far simpler than before

especially with the introduction of the electronicfiling system. While there is no doubt that the


2/4


Small Business Enterprises - Hassle free taxpayment regime

For a relatively small business unit the multiple

channels of compliance impose not only a huge

financial cost but also strain the management

bandwidth available to such entities. It is

necessary to have single window channels of

compliance to help such small entities and

also a hassle free tax payment regime.

The general recommendations have beensummarised as follows:

Well established system of advance ruling1.

Encouraging arbitration to resolve contractualdisputes.

Before setting up a new regulatory organisation,adequate thought should go into the need for suchan organization.

Appointments in and supervision of regulatoryauthorities.

Autonomy of regulatory authorities.

Self evaluation by regulatory organizations.

Each government organisation/ department whichhas the responsibility of writing regulations shouldundertake a two-stage process of consultation,wherein a revised draft is put up for consultationafter the first round of stakeholder consultation.

Allocating priority to systemic issues.

Putting in place consent mechanism for matters oflow significance.

Regulation Review Authority to continuouslyexamine the stock of existing regulations and toweed out those that do not have any continuinguse.

Regulation Review Authority can also be given thetask of reviewing draft regulations that are in thepipeline in order to ensure that unnecessaryregulations are not given effect to.

A regulatory impact assessment of every

proposed regulation should precede the publicconsultation process.

Setting up a overarching body to enable policyand process coordination for MSMEs.

Each State Government appoints a nodal personand a nodal office, which can be the single pointcontact for persons intending to obtain informationon the procedural and substantive conditions to befulfilled for setting up a business.

_______________

1Note: Currently, there exists an Advance Ruling mechanism in the taxation

regime. However it has been recommended to introduce an advance ruling

mechanism in the other regulatory regime.

filing of returns and the payment of taxes has beensignificantly simplified, the same cannot be said aboutthe post filing issues that the average tax payer oftenfaces.

It has also been noticed that there are a number ofproceedings pending in respect of matters the

principles of which have already been decided by a

higher forum such as the Income-tax Appellate

Tribunal. In an attempt to increase the annual collection

of taxes, assessing authorities do not take cognizance

of rulings by higher authorities in matters where the

facts in issue and the principles of law are identical.

This has the further drawback of crowding the system

with matters which should have been decided at the

level of the assessing authority. While it is appreciated

that the judgement of the assessing authority cannot be

substituted by the directions of higher authorities there

would be no harm in the issuance of a general

circular to the effect that assessing authorities

would be obliged to take note of rulings of higher

authorities in identical matters.

Retrospective taxation creates uncertainty business cannot take corrective actionretrospectively

While the World Bank report does not specifically

address the problem of retrospective taxation it isconsidered necessary to touch on the subject.

Retrospective taxation has the undesirable effect of

creating major uncertainties in the business

environment and constituting a significant disincentive

for persons wishing to do business in India. While the

legal powers of a Government extend to giving

retrospective effect to taxation proposals, it might not

pass the test of certainty and continuity. This is a

major area where improvements should be

attempted sooner rather than later since business

cannot take corrective action retrospectively.

Transparent and simple regulatory regime

The panel has suggested simpler drafting of rules to

avoid leaving room for interpretations. The Panel has

recommended greater autonomy to regulators,

transparency in selection of heads for regulatory

bodies, incentives for states undertaking key reforms

and faster resolution of disputes through arbitration

mechanism and consent settlements.
http://www.business-standard.com/search?type=news&q=Autonomyhttp://www.business-standard.com/search?type=news&q=Regulatorshttp://www.business-standard.com/search?type=news&q=Regulatorshttp://www.business-standard.com/search?type=news&q=Autonomy


3/4


Incentivising regulatory reforms amongst states.

There should be built into the system an appellateprocess where a person aggrieved by an order ofrejection may, as a matter of right, approach a superiorauthority for reconsideration of the matter on merits.

Our comments

From an Indian tax perspective, there are two keychallenges dealt with by the Report:

One being time and cost involved in litigation in theabsence of tax officers taking cognizance of rulingpronounces by higher authorities; and

Other being uncertainty caused by the Governmentresorting to retrospective amendments.

The report of the Damodaran committee assumes greatsignificance, specifically, its recommendations on a need toavoid retrospective amendments and on limiting litigation bythe tax authorities, through issuance of circulars (that wouldoblige tax officers to take note of rulings of higherauthorities) and framing simpler rules, if implemented wouldgo a long way in improving business environment andmoving it towards investment friendly from tax perspective.

Interestingly, this committee was constituted under MCA.Hence, as next steps, MCA will study the report and initiateappropriate measures. However, one expects that other

ministries, specifically Ministry of Finance (MoF) will takeappropriate note of important recommendations on taxfront.


4/4


www.kpmg.com/inAhmedabad

Safal Profitaire

B4 3rd Floor, Corporate Road,

Opp. Auda Garden, Prahlad Nagar

Ahmedabad 380 015

Tel: +91 79 4040 2200

Fax: +91 79 4040 2244

Bangalore

Maruthi Info-Tech Centre

11-12/1, Inner Ring Road

Koramangala, Bangalore 560 071

Tel: +91 80 3980 6000

Fax: +91 80 3980 6999

Chandigarh

SCO 22-23 (Ist Floor)

Sector 8C, Madhya MargChandigarh 160 009

Tel: +91 172 393 5777/781

Fax: +91 172 393 5780

Chennai

No.10, Mahatma Gandhi Road

Nungambakkam

Chennai 600 034

Tel: +91 44 3914 5000

Fax: +91 44 3914 5999

Delhi

Building No.10, 8th Floor

DLF Cyber City, Phase II

Gurgaon, Haryana 122 002Tel: +91 124 307 4000

Fax: +91 124 254 9101

Hyderabad

8-2-618/2

Reliance Humsafar, 4th FloorRoad No.11, Banjara Hills

Hyderabad 500 034

Tel: +91 40 3046 5000

Fax: +91 40 3046 5299

Kochi

4/F, Palal Towers

M. G. Road, Ravipuram,

Kochi 682 016

Tel: +91 484 302 7000

Fax: +91 484 302 7001

Kolkata

Infinity Benchmark, Plot No. G-1

10th Floor, Block EP & GP,Sector V Salt Lake City,

Kolkata 700 091

Tel: +91 33 44034000

Fax: +91 33 44034199

Mumbai

Lodha Excelus, Apollo Mills

N. M. Joshi Marg

Mahalaxmi, Mumbai 400 011

Tel: +91 22 3989 6000

Fax: +91 22 3983 6000

Pune

703, Godrej Castlemaine

Bund GardenPune 411 001

Tel: +91 20 3050 4000

Fax: +91 20 3050 4010

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.

2013 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, logo and cutting through complexity are registered trademarks of KPMG International Cooperative (KPMG International), a Swiss

entity.

kpmg flash news - the damodaran committee report

Documents