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GST Would Be Instrumental For Simplification And Greater Transparency
The FM did not seem to disappoint on the first set of expectations with a new agenda "Transform, Energise and Clean India" (TEC) that consisted of ten distinct themes to foster this broad agenda
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The Finance Minister, Arun Jaitley presented the Budget 2017-18 amid high expectations of sops and benefits across the economy, including reduction of tax rates that he himself had canvassed as the key to building a globally competitive economy. This Budget comes in the wake of India bracing itself to face a new world order which is increasingly being modelled on anti-globalisation, impact of the monetary policy stance of US Federal reserve, increasing oil prices. India's trump card -export of services, would undergo severe stress test in the coming days.
The FM did not seem to disappoint on the first set of expectations with a new agenda "Transform, Energise and Clean India" (TEC) that consisted of ten distinct themes to foster this broad agenda. Amongst the themes, the FM covered several welfare initiatives that touched upon farmers, rural population, youth and the underprivileged.
The FM announced several measures with regards to compelling themes that require attention such as, initiatives in improving Infrastructure that has been ailing now over a period of time, the much-needed reforms in the financial sector, improving public service as well as prudent fiscal management. The push to digital economy was again a concurrent theme that envisions the dream of the Prime Minister, Narendra Modi.
While the Demonetisation drive was painful for the economy, it is touted as one initiative in a series to eradicate the parallel economy, stem corruption and several other laudable objectives. While the debate around the design and implementation, cost-benefit and the broader economic policy reform will continue even as re-monetisation is escalated to bring the economy back on its feet, it has left an indelible mark with revelations that are shocking. In his speech, the FM provided compelling statistics how the direct tax collection regime is far short on the biggest challenge - expanding the tax base. This challenge, coupled with optimizing tax rates and improving tax administration remain daunting challenges.
On the tax and reform agenda, the FM walked the talk with the proposal to abolish the Foreign Investment Promotion Board ('FIPB') regime, given that 90% of investment is through the automatic route and the Foreign Direct Investment ('FDI') continues an encouraging trend with investment in the last fiscal at $ 75 bn. While the expectation of the headline corporate tax rate to be lowered was not met with, the effective tax rates for individuals were dropped and the tax rate for MSME tax payers that constitutes 96% of companies was dropped by 5%.
For the tax connoisseurs, this Budget has pragmatic measures such as scoping out of Foreign Portfolio Investors from the impact of Indirect Transfers, liberalization of capital regime for immovable properties, taxation of joint development agreements etc. The provisions also herald the introduction of thin capitalization regime in India on the back of Base Erosion and Profit Shifting ('BEPS') initiative of the OECD and the claim of interest deduction to group companies to be restricted to 30% of EBIDTA and rationalization of transfer pricing provisions for specified domestic transactions.
On the Indirect Tax front, India and the business community eagerly await the introduction of Goods and Services Tax ('GST') which would be instrumental for simplification and greater transparency.
This Budget could be touted as a popular budget with the masses and does not seem to give reasons for any large grievance. It once again sets the tone for moving towards digital economy with several incentives thrown in to move towards a cashless economy. The start-up space which is still in the cradle has once again caught attention with further tax measures that should prove beneficial in the long run. One of the most likeable theme of this Budget is Public Service where the FM wishes to focus on effective governance and efficient service delivery; concepts that were unheard of even from recent memory.
While this Budget could score well on all the issues that it seeks to address, what is left behind unaddressed is the consistent lack of private investment, ailing banking system that continues to plague the Indian economy. The dream of realizing an 8-10% GDP growth in the coming years would be severely challenged if the broad-based economic revival does not set in soon. Amidst these quandaries , as the FM mentioned at the outset in his Budget speech, India stands out as a bright spot in the world economic landscape and would continue to provide hopes to billions for a better future!
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.