KPMG's take on tax provisions in the upcoming Union Budget

As the 2020 Union Budget draws closer, Big Four accounting and advisory firm KPMG has chimed in with its analysis of what the new statement is likely to present. The firm expects changes in the dividend tax as well as a change in the approach to calculating minimum alternate tax (MAT). 

The budget is due to be presented by Finance Minister Nirmala Sitharaman on February 1st, and the changes anticipated are a result of the new tax regime introduced by the government late last year. The new taxation framework is aimed at promoting a pro-business environment in India, through a variety of changes.

For starters, the government slashed overall corporate taxes from 30% to 22%, reducing the tax burden on the business environment. In line with government objectives, the manufacturing sector was given an even larger tax break at a rate of 15%, in addition to changes made to the MAT regime.

The MAT framework was altered to benefit companies that already receive tax exemptions and therefore do not benefit from slashed corporate taxes. For this segment, MAT was reduced to 15% from 18%. The government has given businesses the option to weight the pros and cons of each tax regime and choose to operate in either the old or the new.

KPMG expects that the imminent budget statement will address these changes and include mechanisms to manage under the new tax regime. The government might, for instance, change its approach to computing MAT as it looks to minimise complications from the selective tax rules. 

Another area that might be affected by slashed domestic corporate taxes is that of taxes for foreign companies and limited liability partnerships. Given that the intentions behind the slashed rates was to promote domestic businesses, the government might opt to cover the revenue gap by taxing foreign companies.

Experts have already suggested that the changes in the tax regime, coupled with less-than-satisfactory collection rates in the Goods & Services Tax (GST) portal is likely to significantly affect revenue targets for the government. Ashutosh Dikshit, Partner at fellow Big Four accounting advisory firm Deloitte recently indicated that the government’s revenue targets should be revised backwards to ease pressure on authorities.

According to accounting and consulting firm KPMG, the government’s focus will be on making the collection process easier in the new regime.

“The government may also devise new ways of resolving disputes, particularly in case of transfer pricing and foreign companies. The Budget may witness re-drafting of the law in case of certain complex provisions, like provisions on capital gains taxation. This will bring simplicity in the language and comprehensibility of the law,” said KPMG in a statement.