Aiming to make it easier to do business in India, finance minister Arun Jaitley on Wednesday promised to simplify labour laws, abolished the foreign investment and promotion board (FIPB) and reduced tax rates for the small firms that make up the bulk of Indian industry.
Jaitley announced legislative reforms to simplify, rationalize and amalgamate existing labour laws into four codes—wages, social security and welfare, industrial relations, and safety and working conditions.
The finance minister said a road map for scrapping the FIPB that scrutinizes foreign investment proposals will be announced soon as part of the government’s financial sector reforms.
Later, Jaitley told reporters the body has become irrelevant as 90% of foreign direct investment inflows are under the automatic route. “An alternative mechanism could be (that) the parent ministry deals with the proposal directly,” he added.
To reduce the burden on medium, small and micro enterprises (MSME), that have been badly hit by the government’s demonetization drive, Jaitley reduced their tax burden to 25% from 30.26%.
In order to reduce the compliance burden due to domestic transfer pricing provisions, Jaitley proposed to restrict the scope of domestic transfer pricing only if one of the entities involved in related party transaction enjoys specified profit-linked deduction.
Transfer pricing refers to the practice of arm’s length pricing for transactions between group companies based in different countries to ensure that a fair price—one that would have been charged to an unrelated party—is levied. It has been an area of increasing dispute in India but of late, the government has introduced a number of steps to reduce disputes.
Gokul Chaudhri, leader, direct tax at BMR & Associates LLP said the change in the transfer pricing regulations have two effects: lower compliance for domestic transfer pricing, and enhanced impact on international transaction with the introduction of secondary adjustments.
Jaitley also spoke about the need to regulate the number of tribunals across the country by merging them wherever possible. This could go a long way in ensuring a water-tight legal structure where each tribunal would be specialized in its field of operation.
There are more than 30 tribunals for various tax, company and administrative matters. These include the National Company Law Tribunal, Central Administrative Tribunal, Income Tax Appellate Tribunal, Competition Appellate Tribunal, and Securities Appellate Tribunal.