With rules regarding digital economy taxation around the corner, 2022 will be a key year for digital taxes
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NEW DELHI :
A revamp of the global tax regime covering the most profitable technology giants, a potential recast of the goods and services tax (GST) slabs and continued customs duty re-calibration are among the key tax developments that will keep 2022 a hectic year for policymakers, chief financial officers and tax professionals.
Policymakers are set to stay focused on big-ticket changes even as the government appears on course to meet its tax targets this year, given the continued economic recovery after the second covid wave.
One of the major changes expected is the shift to a global minimum tax and a new digital economy tax regime, for which rules are to be framed. Much of the negotiation is expected in 2022 for implementation in 2023. This is expected to change the way India levies tax on offshore digital economy firms having a customer base here. While New Delhi will get greater taxation rights over tech giants’ profits that can be allocated for taxation here, India and some EU nations will have to withdraw their digital services tax implemented unilaterally.
Experts said that with rules regarding digital economy taxation around the corner, 2022 will be a key year for digital taxes.
“It will be an intense year for companies to not only understand the potential impact of the rules and the future state of taxation, but also identify, prepare and plan for the level of data that will be required to support the implementation," said Kunj Vaidya, partner at Price Waterhouse & Co. LLP.
Experts also believe that tax authorities will be laying greater emphasis on data analytics and enforcement of compliance based on the use of technology in tax administration, collection of data from third parties and improved communication between regulators and investigating agencies. This has already yielded results in checking instances of fake invoicing resorted to by some for manipulating turnover and tax liability.
Rationalization of GST slab structure and improving the efficiency of the indirect tax system are key agenda items before the federal indirect tax body, the GST Council, which will have a major impact on businesses and consumers in the coming year. Two ministerial panels led by Karnataka chief minister Basavaraj Bommai and Maharashtra deputy chief minister Ajit Pawar are currently working on this.
“Incipient inflationary trends may, however, tie the hands of the government if rates on certain goods need to be increased as part of this rationalization exercise," said EY India tax leader Sudhir Kapadia.
The panel on GST rate rationalization may suggest merger of the current four GST slabs to three and phase out many exemptions to enhance revenue collections, said Pratik Jain, partner at Price Waterhouse & Co LLP.
India’s customs duty structure will also continue to evolve in the coming year. “In sync with Atmanirbhar Bharat, customs duties on raw materials and components may continue to be lowered, with a higher tariff on finished goods. Robust excise duty collections may continue unless steep global crude prices compel further rate cuts," said Jain. Given India’s commitment towards net zero emissions, realignment of taxes on sustainable products is imperative, Jain added.
Given the healthy uptick in economic growth and tax buoyancy, the government is unlikely to increase any income tax rates. Courts and the GST Council are expected to settle various issues in 2022 having huge impact across sectors, said Charanya Lakshmikumaran, partner at Lakshmikumaran & Sridharan Attorneys. The Delhi High Court is likely to decide on various constitutional challenges, including that of the anti-profiteering provisions under GST, said Lakshmikumaran.