As always, the Budget is preceded by numerous rounds of meetings between the finance minister and business leaders, chambers of commerce and others; again, as always, there is immense speculation in the media on what announcements and tax and other changes are likely to come thorough, particularly given the fact that this is the first full Budget that the new government is presenting.
As we look at what should one expect in the forthcoming Budget, here are a few issues we need to be alive to: We have had significant deficit in collection of indirect taxes. While the direct tax collections are on target, there are concerns on refunds. The ability of the government to use taxes as a catalyst for development is limited by this fact.
The current account deficit is likely to be addressed, in part, by the decline in oil prices. However, the need of the moment is to enhance economic growth which can result in robust tax collections. Also, the need is to expand the tax base. While a lot has been spoken on the front of unaccounted monies stacked overseas, there is more to be done on the domestic front.
Finally, the economy needs to get into an investment mode. Indeed, the initiatives taken by the PM of getting investment commitments from overseas, the ‘Make in India’ initiative and the infrastructure needs of the country all need substantial investments and rejuvenation of the investment climate.
As the FM has pointed out, the government has been announcing policy changes every day and one need not rely on the Budget to herald changes. The reality is that there are always significant expectations from the Budget to unveil changes and policy announcements. In this background, let’s look at a few things that this Budget can address to propel growth: First, the government has announced changes in the Land Acquisition Act; the ordinance needs to be legislated soon.
Similarly, the FDI and other policy announcements which have been brought in through ordinance, need to be passed by the Parliament. With this one important hurdle out of the way, there is a need to unveil infrastructure projects in all sectors from road, cities, airports to energy, International Finance Centres and SEZs.
There is an urgent need to bring back the investment climate in this country and providing that investment impetus which this country has missed in the last few years.
To make the `Make in India’ a successful story on the ground, there are a few impediments that need to be removed to make this happen. The timely introduction of GST is one initiative which will help. The removal of minimum alternate taxes (MAT) on SEZs is another one. This was a retrospective tax, so to say, introduced by the previous regime and needs to be relooked at.
A lot has been said about the creation of a non-adverserial tax regime. The commitment of the government of not introducing retrospective taxes is one positive move. What is also necessary is to ensure deferral of implementation of GAAR which is apprehended to create a regime of subjectivity and uncertainty. Similarly, there is an urgent need to adopt the Shome Committee Report on the interpretation of, what is popularly called, the Vodafone amendment.
We need a dispute resolution mechanism which allows matters to reach a resolution without a 20-year court process, on a negotiated basis. Finally, we need our budgeted tax collections to be realistic. Aggressive budgeted collections result in aggressive additions and an aggressive tax regime.
The one thing that the government needs to consider is to announce an education policy. Sustained skill development is needed to build our competitive advantage in the services sector and creation of skilled manpower for `Make in India’. The current FDI policy on education needs a serious relook and we as a country need to lay down a policy of breaking the cross-border barriers to education.
Sustained investment in research and development is what will provide us the competitive advantage. With it goes the need for having a globally acceptable IPR policy. It is interest ing to see that some of the largest global con glomerates set up a re search & development facility in India and then manufacture the goods that have been de veloped in India else where in the world!! Clearly, we have gaps here which need to be addressed.
The financial sector is the one sector which is a harbinger of growth in the country and has a hich need addressing. The few issues which need addressing. The levy of service tax on cross-border taxes such as on money changing needs a relook. The issues relating to taxation of REITs, which are currently inhibiting their issue, need to be addressed to make this initiative a success. We also have issues like the rate for levy of capital gains tax on unlisted securities which need clarity. These issues act as irritant to business and investment without yielding tax revenues to the government.
Finally, on the avowed goal of the PM on making India an easy place to do business in, concrete steps need to be taken to remove red tapism and needless processes. Whilst this is not necessarily a budget issue, the Budget can provide a broad direction.
While the FM is right that the Budget should be a non-event, it is necessary to recognise that this Budget is likely to be widely watched for the policy reforms and will evoke a global response on whether this government means business and delivers on its promises.
Dinesh, Kanabar, CEO, Dhruva Tax Advisors
Source: Economic times