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Interim Budget 2024: tax navigation, BEPS 2.0 and energy transition
In the latest episode of our podcast series on the Interim Budget 2024, EY India Energy Tax Leader Raju Kumar, discusses the critical areas within direct taxation, potential changes in the upcoming budget, and the significance of Base erosion and profit shifting (BEPS) 2.0. He also shares insights on the pivotal role that the upcoming budget can play in shaping India's energy sector, particularly amidst the ongoing energy transition, various policy considerations, and the potential impact of BEPS 2.0 on India's energy policies.
Interim Budget 2024 may focus on corporate tax changes, including BEPS 2.0 implications for multinationals and manufacturing incentives.
Tax evasion can be addressed through enhancement in technology, streamlined procedures, and robust taxpayer identification and registration.
Budget 2024 has the opportunity to set the tone for India’s energy transition, focused on enhancing energy resources through various sources, grid resilience, and decarbonization.
Interim Budget 2024 may include corporate tax shifts and anti-evasion strategies and has the potential to pave the way for the transition of India’s energy sector.
Welcome to all our listeners. Thank you for tuning in to our EY India Insights Podcast. I am Pallavi Janakiraman, your host for today. In this latest episode of Budget 2024 series, we aim to provide you with a comprehensive coverage of the budget spanning a diverse range of perspectives from the macroeconomic landscape to the direct impact on individuals and taxpayers, and also the intricate effect on businesses and large organizations. We are joined by Raju Kumar, EY India Energy Tax Leader, who comes with extensive experience in guiding companies through intricate tax landscapes.
He also specializes in offerings to advise on tax structuring for cross-border investments, optimizing global supply chains for tax efficiency, facilitating income repatriation, providing insights on incentives, and also ensuring meticulous tax compliance.
Thank you for joining us today.
Raju: Thank you, Pallavi.
Pallavi: What are the key areas within direct taxation that businesses should closely watch out for in terms of potential changes or reforms in the upcoming budget?
Raju: Considering this is an election year, we will have an interim budget right now, as the listeners would be aware. A comprehensive budget would only come post elections. Keeping in mind past trends, I expect this interim budget to be low on any new announcements or any marquee changes. Having said that, two key corporate tax changes that we should watch out for are implementation measures around Base erosion and profit shifting (BEPS) 2.0. This can be an important change, especially for big multinationals that are within the ambit of BEPS 2.0. Second, an extension of timeline associated with a reduced corporate tax rate of 15% to incentivize manufacturing and attract fresh investments in manufacturing in India, which aligns with the government's ‘Make in India’ agenda.
Pallavi: Thank you, Raju, for these insights. How might the government address concerns related to tax evasion and increase tax compliance through direct tax measures?
Raju: This is an important area and we have seen that the government has been very focused on these areas in the past. Addressing tax evasion and increasing compliance through direct tax measures is a complex challenge with diverse approaches. A couple of potential strategies that may be considered include:
1. Enhancing date analytics and technology: The government has spent significantly on technology within tax, whether through GST or bringing tax compliances through technology. But most importantly, utilizing data analytics tools for risk assessment, anomaly detection and targeted audits can improve efficiency and deter non-compliance. Indian tax authorities have already started deploying data analytics in processing of tax returns and other taxpayers’ data such as Country-by-Country Reporting (CbCR), which the listeners would have experienced. We have also seen tremendous increase in tax compliance, particularly with the increasing number of taxpayers over the years.
2. Streamlining filing procedures: I think the second aspect will be streamlining the filing procedures and tax code complexity. Simplification of tax forms (which are being talked about) and procedures can reduce uncertainty and encourage voluntary compliance.
3. Strengthening taxpayer identification and registration: The third aspect would be strengthening taxpayer identification and registration, which is essentially a comprehensive, single tax identification number linked to diverse data sources. This can help track income and identify potential evasion. Some of this is already being done through the Memorandum of Understanding (MoU) between the Central Board of Direct Taxation (CBDT) and the Central Board of Excise and Customs (CBIC) and other agencies. The data that used to be in isolation from different regulatory agencies is being attempted to be brought on a single platform so that analytics can be better, and taxpayers can prepare for targeted scrutiny, assessments and questions around that.
Pallavi: Thank you for those insights, Raju. Our next question is based on BEPS 2.0 energy transition. What are the key factors that make the upcoming budget crucial for the India’s energy sector, especially in the context of the ongoing energy transition?
Raju: This (energy) is a critical area because, as listeners would be aware, India is a very big consumer of energy. With the rapid economic growth, our carbon footprint is also expected to increase, and we need more sources of energy for enhanced power generation. We also need to rely more on the renewable sector, which is in process, and also a thrust on increasing nuclear power generation. India stands at a very peculiar situation when it comes to energy. Coupled with the fact that there is a global push towards energy transition and the anticipated overhaul of the sector as a whole, the upcoming budget presents itself as a great opportunity for the government to make some policy changes and solidify its commitment to set India on the path of energy transition or decarbonization.
Key areas that the government may look to consider are augmenting the budget for the Ministry of New and Renewable Energy (MNRE), which is crucial to meet the ambitious target of 500 gigawatt of renewable energy capacity by 2030. Second, if we talk about hydrogen and other emerging technologies like offshore wind and energy storage solutions, any incentives around these areas will also help diversify the renewable energy portfolio and enhance grid resilience. This is likely to address transmission and distribution constraints through investments in modern grids and smart meters, bringing in some taxonomy around green bonds, which becomes helpful for companies that are planning to invest in the renewable sector and access funds from different sources.
Another area catching the global eye is the development of a robust carbon market. It would be interesting to see if there are any policy changes around implementation of an effective carbon credit trading system to incentivize industries to reduce emissions and generate additional revenue for clean energy initiatives.
Pallavi: Can you providea brief overview of BEPS 2.0 and its significance in shaping the India's energy policies?
Raju: BEPS 2.0 is a result of an Organisation for Economic Co-operation and Development’s (OECD) project on addressing the tax challenges of digitalization of the economy and captured proposal to make fundamental changes to global tax rules. It has two parallel elements - Pillar One is about revisions to profit allocation and nexus rules to allocate more taxing rights to market countries, and Pillar Two, which seeks to establish new global minimum tax rules to ensure that all business income is subject to at least an agreed energy policy.
BEPS 2.0 primarily focuses on tax avoidance, not broader energy policy issues. It is not expected to directly address challenges like energy security, affordability, or environmental sustainability. In my opinion, the impact of BEPS 2.0 on India's energy policy is likely to be indirect and limited.
Its potential to generate additional revenue and promote tax transparency could positively influence the overall economy, including energy policy decisions, and contribute to a more sustainable energy future for India. Having said this, as I mentioned earlier, it is important to consider that BEPS is still an evolving subject, and its full impact on India's energy policies remains to be seen.
Pallavi: Thank you, Raju, for joining us today and helping with such valuable insights for all our listeners.
Raju: Thank you.
Pallavi: On that note, we come to the end of this episode. Thank you to all our listeners for joining us in this insightful discussion. Please stay tuned for our next podcast. Until then, if you want us to cover any specific topic for discussion, please feel free to share it with us on our website or markets.eyindia@in.ey.com. Thank you for tuning in. Goodbye.
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