PMO on overdrive to boost Government image

Is the Prime Minister’s Office (PMO) in an overdrive to shed its ‘policy paralysis’ tag associated that the UPA Government earned during its second term in office? Going by the number of committees set up by the PMO since the last one month, it appears so. Be it the panel on General Anti-Avoidance Rules or the setting up of a Project Clearance Board on the lines of the Foreign Investment Promotion Board, the PMO is keen to shed the tag of policy inertia associated with the government.

In the latest move, the Prime Minister has constituted a committee to review taxation of development centres and the IT sector.

The panel’s major mandate among other things is to not only address issues relating to the taxation of the IT sector such tax treatment of “onsite services” of Indian software firms but also finalise the ‘Safe Harbour’ provisions announced in Union Budget 2010-11.

Development centres are captive entities set up by multinational companies in India for undertaking activities such as product development, analytical work, software development etc. These centres exist in various sectors such as IT software and hardware, pharmaceutical and automobile R&D etc.

Over 750 MNCs have such centres at over 1,100 locations in India. Despite having a huge concentration of such centres, India still does not have a monopoly on them and there is a need for clarity on their taxation.

“The intent is to send a signal that the government means business. The next step is to see to it whether these panels implement the mandate in the right letter and spirit. At the same time, one needs to give them the benefit of doubt. It will be a big disappointment if they don’t come up with meaningful solutions,” FICCI Secretary General Rajiv Kumar told Express.

The committee on taxation of development centres and the IT Sector will be headed by former Chairman of Central Board of Direct Taxes and Insurance Regulatory and Development Authority N Rangachary. The other members of the committee include Anita Kapur, Director General (IT); Rashmi Sahani Saxena, DIT (TP); and another officer from the Income Tax Department to be co-opted by the Chairman.

Rangachary incidentally is also member of the committee set up to review GAAR provisions. He has also been on the board of Analjit Singh-led Max India Limited. Singh was in February appointed as non-executive Chairman of Vodafone India.  In June, Singh had met Planning Commission Deputy Chairman Montek Singh Ahluwalia amid reports that Vodafone and the government might settle the tax case out of court.

The Rangachary panel will also seek to address concerns relating to Safe Harbour provisions, which were announced in the Finance Bill 2010 but have yet to be operationalised.

These provisions are international disclosure practices to check litigations in transfer pricing – an accounting mechanism undertaken by MNCs to reduce tax liabilities.

“The overall goal is to have a fair tax system in line with best international practice that will promote India’s software industry and promote India as a destination for investment and for establishment of development centres,” a PMO statement said.

The Rangachary panel will finalise the approach to taxation of development centres and the IT sector by August 31. It will also finalise Safe Harbour rules individually sector-by-sector in a staggered manner and submit draft provisions for three sectors sub-activities each month starting September 30. All Safe Harbour provisions are expected to be finalised by December 31, 2012.