Union Budget 2024: Tax parity, rationalisation of custom duty rates, US-India forum shares wishlist

Budget 2024 expectations: The Tax Policy Forum of the US-India Strategic Partnership Forum (USISPF) has submitted its wishlist ahead of the Union Budget for 2024-25, which will be tabled in the third week of July. The US-India Tax Forum has recommended that the government should establish equality in the tax obligations of domestic and foreign entities across various industries. 

A key focus of the recommendations is the rationalisation of corporate tax rates. The forum emphasised that achieving tax parity is crucial for creating a fair and competitive environment, particularly in sectors such as banking, where branches of international banks currently face disproportionately high tax rates in India.

The Forum has put forth proposals for substantial reforms in the capital gains tax system. These reforms aim to simplify the existing structure by standardizing tax rates and holding periods for investments in equity, debt, and immovable property. Their ultimate goal is to alleviate the compliance burdens placed on taxpayers. Furthermore, the Forum suggests implementing tax neutrality for the restructuring of mutual funds to align with international standards.

In light of the rapid advancement of digitalization and the increase in cross-border trade, the Forum also recommends a comprehensive overhaul of India's Transfer Pricing regime. This includes enhancing the efficiency of audit procedures, improving dispute resolution mechanisms and appellate procedures, revising safe harbor provisions, and expediting processes related to Advanced Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs).

One area of focus for the Forum is the rationalization of customs duty rates on specific goods regarding indirect taxes to support the "China plus one" strategy. They advocate for measures that would make the import of critical supply chain components more cost-effective. Additionally, they propose streamlining customs processes to enhance efficiency.

"The simplification of the withholding tax regime is among the top asks of the Tax Forum. With the increased adoption of technology and use of data analytics, the scope of TDS and TCS provisions needs to be rationalised," the US-India Tax Forum said.

Tarun Bajaj, Chairperson of US-India Tax Forum and former Revenue Secretary, Government of India, said: "The Budget 2024-25 is expected to build on the reforms previously implemented. It is expected to introduce targeted reforms in direct taxes and customs policies to enhance India’s economic partnerships globally."

Bajaj emphasized the importance of anticipating measures to streamline corporate tax structures and transactions, incentivise investments, and simplify customs procedures to facilitate smoother trade flows in the industry.

He added that it is essential to implement these initiatives to foster a conducive business environment and strengthen bilateral economic ties, ensuring mutual prosperity and competitiveness in the global market. Additionally, these measures will enhance the ease of doing business for industries in India.