Some of such steps like carrying forward tax holidays may come up in the Budget, while the government may approach the goods and services tax (GST) Council for giving relief on the GST.
For tax relief on the stamp duty, states’ cooperation might be sought, sources said. Companies going through the insolvency procedure face tax-related roadblocks, making the resolution process tedious. For example, they pay the GST on sales of assets as well as brands, royalty, etc.
Earlier, under the Sick Industrial Companies (Special Provisions) Act, companies were given exemptions from the central sales tax (CST). With the advent of the GST, the CST is no longer there. Exemption from the GST
will help companies bid for assets at higher prices, resulting in more funds for lenders. “If GST
exemption is granted for assets sold pursuant to the Insolvency and Bankruptcy Code
(IBC) process, it would increase recoveries for lenders,” Amrish Shah
of Deloitte India said.
Similarly, sales of assets including land would attract the stamp duty, which varies from state to state in the range three to 10 per cent, but in most states it is around five per cent.
The stamp duty is a state subject and as such is required to be amended by states. Even though there is a central law — the Indian Stamp Act, 1989 — the rates are decided by states, which have the Constitutional right to make any changes to the Act and have their own sets of rules in this regard.
Even in a particular state, these might vary from one locality to another. For example, Maharashtra has the Bombay Stamp Act, 1958. Other states such as Gujarat, Karnataka, Kerala, Rajasthan, and Tamil Nadu also have their laws on this.
There is also an issue of transferring losses or tax holidays of the company acquired to the one that has purchased it. According to current laws, the tax holiday enjoyed by the insolvent company cannot be carried forward.
“To make the IBC process more robust, the carried forward losses of the company under the IBC should be shifted to the acquiring company pursuant to the acquisition of business,”
Also, there are conditions on transferring losses and unabsorbed depreciations in the case of merger or demerger. For instance, the transferee company should continue to hold 75 per cent of the book value of the fixed assets for at least five years and the amalgamated company has to achieve at least 50 per cent of the installed capacity of the amalgamating company before the end of four years and maintain it till the fifth year in order to receive such transfers.
These conditions are likely to be relaxed for merger under the IBC.
of Deloitte said: “Tax issues faced by companies under the IBC
could lead to a large number of taxation disputes. It is important for the government to resolve the matter.”
A recently constituted committee set up by the government under the chairmanship of the secretary in the Ministry of Corporate Affairs
is looking at these changes.
via Firms acquiring stressed assets under insolvency may get tax relief | Business Standard News