Finance Ministry Officials Propose Tax Reforms to Services Sector

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May 3 – Finance ministry officials called for reforms to India’s tax structure for services like shipping, aviation and telecom to make them competitive.

In a working paper titled, “Policy for India’s Services Sector,” finance ministry senior economic adviser H.A.C. Prasad and additional economic adviser R. Sathish said that the government should rationalize the tax structure in the shipping industry, which pays 12 direct and indirect taxes currently.

Taxes like corporate tax, minimum alternate tax, dividend distribution tax, withholding tax on interest paid to foreign lenders, wealth tax, VAT, lease tax and service tax raise the effective tax rate of around 2 percent under the tonnage regime to around 9 percent.

As per the tonnage tax system imposed on shipping a few years back, levies should be based on assets rather than on revenue the paper said.

The paper clarified that these are the views of the authors and not the finance ministry.