|05.01.2007. Rajesh Chopra.
LiveIndia.com New delhi.
Tax exemptions to go
The coldest day in the capital this winter on Monday brought a chilling message — all tax exemptions could be pruned. Ahead of the Budget, speaking at the Ficci AGM, Prime Minister Manmohan Singh set the alarm bells ringing when he said: "In the long run, our tax regime should not have too many exemptions which make tax administration an unnecessarily complex exercise vulnerable to misuse."
But the good news is exemptions available for individuals are not likely to be axed in this Budget; the focus is likely to be on exemptions for the corporate sector. But if the trend is established, it's a question of time before individual exemptions too — like the ones on home loans, investment in public provident funds, post office savings schemes and insurance — will face the heat.
While the finance ministry is looking to introduce the EET (exempt, exempt, tax) method of taxation, which will result in you having to pay tax when you withdraw your PPF or NSC on maturity, the move may not fructify in this Budget since North Block is still preparing the blueprint.
But PM's signal could be bad news for companies which will have to bank on fewer sops for direct tax as well as excise duty.
MNC's fee income comes
under tax net
The company's Luxembourg-based parent International Hotel Licensing Company Investments argued that the income earned by its subsidiary is the result of its global advertising, marketing and sales programme and it is not liable to pay tax in India.
In 2005, different Marriott group entities entered into various agreements with Unitech Hospitality, an Indian company, for a hotel in Noida in Uttar Pradesh.
In September 2005, International Hotel Licensing entered into an ‘international marketing programme participation agreement' with the Unitech group. The agreement provides that overseas marketing and business promotion (co-ordinating global marketing activities) of Marriott will be carried out by International Hotel Licensing which will get an annual contribution of 1.5% of the gross revenues of the hotel and 3.4% of members gross room revenues.
Considering that International Hotel Licensing is getting a fixed revenue from Unitech and the the agreement is valid for 25 years (with further extension of 10 years), AAR has ruled that a business connection is established between Unitech and International Hotel Licensing.
Since there is no double taxation avoidance agreement between India and Grand Duchy of Luxemborg, the tax liability of International Hotel Licensing is decided as per Indian income tax laws.
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