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Govt panel looking at R&D expense-related tax provisions

Our Bureau

New Delhi , Nov. 18

THE Union Budget for 2006-07 may see certain changes in the income-tax provisions relating to the research and development (R&D) expenditures incurred by companies.

Currently, corporates can avail a weighted deduction on such expenditures.

The Government is now looking at the entire gamut of issues relating to R&D expenditures including the tax provisions to ensure that such expenses are usefully spent.

In his inaugural address at the international tax conference on cross border transactions, the Revenue Secretary, Mr K.M. Chandrasekhar, said that R&D expenditure was an area that the Finance Ministry was looking at jointly with the department of science and technology.

A committee headed by Dr Mashelkar was looking into this area, Mr Chandrasekhar said.

He said that the committee was looking at ways in which the entire expenditure on R&D whether in the form of tax expenditure or revenue foregone or actual expenditure can be targeted specifically to ensure that it was spent usefully and productively on investments in research.

The two-day conference is being organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) in association with the Organisation for Economic Cooperation and Development (OECD) and the International Bureau of Fiscal Documentation (IBFD).

Mr Chandrasekhar pointed out that the Kelkar committee had recommended abolition of weighted deduction on R&D expenditure as it provided a kind of perverse incentive to shift expenditure.

Asked whether the weighted deduction for R&D expenditure was likely to be scrapped in the forthcoming budget, Mr Chandrasekhar told Business Line that the Mashelkar committee was yet to take a final view on this matter.

On the issue of double taxation avoidance agreements (DTAA), the Revenue Secretary said that the Finance Ministry was willing to have greater interaction with industry in the finalisation or revision of such agreements.

In the recent past, the Government has invariably been contacting industry to take on board the latter's views on any DTAA that were being negotiated. It now wants industry to take a larger participatory role in the negotiations.

"We would like the industry to participate with us in the negotiations — be there in the negotiations, provide inputs to our negotiators so that we can have DTAA that are far more beneficial for industry", Mr Chandrasekhar said.

As regards interaction between tax jurisdictions, the Revenue Secretary underscored the need for more interaction between countries in the area of taxation. "There are lot of interactions between countries on trade front at the WTO. There are also interactions on the money flows. But on the taxation structures, adequate interactions are not there. Greater flow of ideas is important in ensuring smooth and uniform tax structure all over the world", he said

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