Companies send SOS to tax and audit experts for Vivad se Vishwas scheme

Ghughuti Bulletin

Mumbai: Several companies, including public sector units, are still reluctant to settle all their tax litigations through the
Vivad se Vishwas scheme despite government prodding due to cash flow issues and likely impact on balance sheet, people privy to the development said.

These firms have reached out to their tax and audit advisors to help resolve these two issues, they said.

The scheme introduced in the recent Union budget allows taxpayers to settle disputes by paying outstanding taxes while getting a waiver of interests and penalties.

However, experts said, many firms lack the required cash flow while many are worried that availing the scheme would substantially impact their earnings per share (EPS).

Further, many companies, including ONGC, Gail Ltd, Power Finance Corporation, REC Ltd and Indian Oil Corporation, will be required to take approval from their shareholders if they decide to take advantage of the new scheme, they said.

“For several companies, especially some of the public sector units, the problem is that of cash flows; and even if they want, they may find it tough to settle old disputes and pay under the tax litigation scheme,” said Girish Vanvari, founder of tax advisory firm Transaction Square.

“Also it’s not a simple choice for listed entities since they will need to explain the deviations to their investors as these companies have created deferred tax assets or provisions and paying taxes under the scheme will have an impact on their EPS,” he said.

An estimated 480,000 cases have been pending in the courts and quasi-judicial forums for years and it could take a long while before the tax department sees any of the money, assuming it eventually wins these disputes. Their total value is pegged at Rs 9.32 lakh crore.

Hence the government is nudging companies to avail the scheme.

“In the last two days, the revenue department has issued letters to companies and tax officials are calling their CEOs and senior executives to avail the scheme,” said a tax expert advising few companies.

Revenue officials have also reached out to some of the top information technology companies based in Bengaluru to settle past litigations around tax holidays.

But companies are reluctant. Many multinationals and some large Indian companies are steering clear of the scheme, people in the know said.

“The companies that have cash flows think that they have a strong case (to win the tax litigation in courts), while those who wish to settle do not have money to settle under the scheme,” said the tax expert quoted earlier.

Some companies in sectors such as real estate, infrastructure and heavy engineering wish to settle past litigation but they do not have money to do so, tax experts said.

Some of the PSUs, too, want to settle certain cases and are looking at ways to arrange the cash required to settle past litigation, sources said.

As per the scheme, companies can first make commitments before March, but will have to pay up as per the schedule.

Most of the litigation for PSUs are around capitalisation of certain expenses like oil exploration and mining.

Industry trackers also said companies may need to tell investors about any move to avail this scheme due to the treatment of disputed tax liabilities on the balance sheet. Most companies have deferred tax liabilities sitting as assets on their books. If the company decides to settle, then they will have to write them off.

ET had first reported on January 4 that the government may introduce a tax dispute settlement scheme in the budget.

The government is hoping to collect around Rs 50,000 crore through the scheme.

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