Corporates consider unpredictable rulings by authorities as the biggest challenge facing the tax administration in the country, even as they devote more time and attention to deal with issues concerning income tax.

“Corporates, especially MNCs, believe that unpredictable rulings by tax administration are the most important reasons leading to tax risk challenges, while lack of clarity in tax laws is a major concern for Indian firms,” said a survey on “Tax Risks in India” conducted by global taxation consultancy firm PriceWaterhouseCoopers (PWC).
Conflicting judicial positions and frequent changes in tax laws were other areas of concern, PWC Executive Director Ketan Dalal said while releasing the survey.

The country, he said, needs to restructure tax administration and improve dispute resolution mechanism, in the absence of which litigations take on an average 12-15 years to settle. Among various taxes, income tax remained on top of corporate agenda because of its direct impact on the bottomline of a company, he said.

Potential risk

The other important tax which occupied the attention of the corporates was service tax, which is a relatively new tax for the companies as well as for the administration, he said. The MNCs, Mr Dalal said, conceive transfer pricing taxation as the most important area of potential risk, while the IT/ITeS firms perceive mergers and acquisitions as significant risk areas.

Only about 16 per cent of the firms surveyed were ready to litigate for settlement in case of a tax dispute, said the report released by PWC.

Tax authorities rarely give a decisive ruling in issues involving tax litigations.

Talking about the advance ruling window, he said it could be an option but not many companies would be ready for it as they apprehend an unfavourable ruling would close the doors for further appeals,  Mr Dalal said.