India's finance minister Arun Jaitley struck a conciliatory tone towards investors, promising to tax corporate profits at competitive rates and saying the government would do all in its power to implement a new goods and services tax (GST) on time.
Foreign portfolio investors have complained about surprise tax claims and, during a news conference to mark Prime Minister Narendra Modi's first year in power, Jaitley said a judicial resolution was in the works.
Modi's Bharatiya Janata Party had accused the previous Congress-led government of "tax terrorism". But having pledged to overhaul the tax regime, Modi's pro-business government was caught flat-footed in a row with foreign portfolio investors over demands they pay minimum alternate tax, for which they had not previously been liable.
Addressing those concerns, Jaitley said taxes should be applied fairly and promised to bring down the rate at which companies pay tax on profits, reiterating a budget pledge to cut the tax rate to 25 per cent from 30 per cent over four years.
"We must ... remove discretion, phase out exemptions and bring the effective rate down to global levels," Jaitley said. He also told reporters he hoped that the upper house of parliament would "soon" pass an enabling amendment that would make it possible to implement on time a new goods and services tax that would unify Asia's No.3 economy into a common market.
The government failed to push through the GST legislation before the end of parliament's budget session and was referred to joint committee of both houses, creating concern that the measure would not take effect as planned on April 1, 2016.
Jaitley acknowledged that there was a risk of "cutting it too fine" but said the government would "make every effort to ensure that there is no delay". Giving an upbeat assessment of the economy, Jaitley highlighted a 40 per cent increase in foreign direct investment in the government's first year and said that the ratio of bad loans on the balance sheets of Indian banks was falling.
In other comments, he said the government plans to sell stakes in state-run companies to strategic buyers to partly meet its budget target for raising revenues from asset sales. Of the total target of 690 billion rupees ($10.85 billion) in asset sales, deals worth 500 billion rupees were already "in the pipeline", Jaitley said.
Revenues and the fiscal deficit will improve this year, after provisional data showed that the budget gap came in at 4 per cent of gross domestic product in the fiscal year to March 31, better than an upwardly revised target of 4.1 per cent.
Jaitley said the government was in talks with the Reserve Bank of India on setting up an independent public debt management agency (PDMA). The comments came after the government last month withdrew proposals to set up the agency, with Jaitley adding then that the government would consult with the central bank and unveil a new roadmap.
RBI Governor Raghuram Rajan last week denied the central bank was against the idea of a public debt office, and said there was no difference of opinion between the central bank and the government on the issue.
Jaitley did say, however, that he would favour a cut in interest rates and that the value of the rupee should be market driven. The RBI, which has cut interest rates twice this year, holds its next policy meeting in early June.