Budget 2019: A Step Towards $5 Trillion Economy
While the foundation has been laid down, the implementation with action-oriented approach targeted to meet the Government’s desired objective will hold the key to its success.
Photo Credit : Himanshu Kumar
With reinstatement by resounding majority of Modi Government for another 5 years, the road map to re-affirm the progress of reforms, perform & transform and give further shape to the 10-point vision laid down earlier was clearly the theme of today’s Union budget.
Amidst the anticipation of the full year budget of Modi 2.0, the Finance Minister’s speech earlier today touched upon various structural reforms across sectors to address the slowdown in consumption, bad loans of PSU banks and NBFC, lagging exports and agricultural distress. While at one side, the government was faced with a daunting task of increasing revenue collections, at the same time, it was necessary to create avenues to attract foreign direct investment (FDI) inflows, reduce compliance burden, align to international best practices and continue its growth path on ease of doing business.
In order to attract foreign players to invest in India, the finance minister announced further liberalizations to be evaluated in aviation, media & animation and insurance. Also, to give additional impetus to aviation sector, policy intervention was announced to create a congenial environment to enable aircraft financing & leasing in India and set up maintaining, repair, overhaul (MRO) services in India, which will definitely help in achieving the objective of make in India. However, one needs to wait and watch for the policy details and its implementation to comment on its impact. This may also require some rationalization of taxes along with regulatory changes to make it competitive and successful in India.
A welcome move amongst the tax budget proposals was to expand the benefit of concessional corporate tax rate of 25% to companies having annual turnover up to Rs 400 crs, covering 99.3% of companies in India. While the phased reduction in corporate tax rate continues, it has laid down the road map for further reduction going forward. At the same time, the individual tax slabs have remained unchanged and individuals having income exceeding INR 2 crs and INR 5 crs have been subjected to surcharge of 25% and 37% respectively to tax ‘super rich’ instead of introduction of inheritance tax which was being debated extensively. The step of imposing higher surcharge on super-rich has the potential to further make the economy uncompetitive with its neighbors and may result in some Indians to move to low tax jurisdictions.
Ease of compliance by taxpayers has been in the forefront in last term of Modi government and interchangeability of Permanent Account Number (PAN) and Aadhar announced in today’s budget is also a vital step in that direction. The underlying objective here is to widen and deepen the tax base by capturing high value transactions, where there is no PAN available. The Finance Minister has also made return filing mandatory for prescribed assesses entering into certain high-level transactions, who were earlier not required to do so.
The Government continues to relentlessly focus on undertaking positive structural reforms in promoting a less-cash economy. The researcher turned Finance Minister during her budget speech has mentioned that necessary steps will be taken to make amendment in Payment and Settlement Systems Act, 2007 to provide no levy of any charge on payments under prescribed electronic modes. Also, applying withholding tax on excess cash withdrawals will help in achieving the overall objective of less-cash economy.
Through effective leverage of technology, a slew of measures have been proposed to be taken to reduce compliance burden by providing pre-filled income-tax return, fully automated refund for GST module, electronic invoice module to be captured in central system resulting in doing away with the requirement of separate e-way bill. These steps are directed to increase the coverage of transactions resulting in reducing tax leakage, improving the ease of doing compliances and in fact bringing in line to the international best practices. Some of these measures are already in practice in countries like Australia and Brazil.
With the objective to further encourage the entrepreneurship in India, start-ups have been proposed to be further incentivized by relaxation on loss carry forward provisions, scrutiny on its valuation from revenue authorities and expediting pending litigation.
All in all, a progressive budget for India with several steps in the right direction to become a $5 trillion economy. While the foundation has been laid down, the implementation with action-oriented approach targeted to meet the Government’s desired objective will hold the key to its success.
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