Macro-economic statistics announced in the Economic Survey raised the bar for Budget FY17 proposals. Finance minister Arun Jaitley has done a fine job in pulling off an all-encompassing and considerate budget, which can boast of elements of tax policy and administration reforms, measures for regulatory overhaul and recalibration of the government’s approach to improvise India’s ‘ease of doing business’ rating.
Budget proposals are knitted around ‘9 Pillars of Transformative Agenda’ set out by the FM, the majority of which cater to the government’s objective of realising inclusive economic growth. On anticipated lines, several policy announcements and large resource allocation for social schemes, agriculture, rural credit, roads and ports that have been made will provide impetus to growth and promote the government’s flagship programmes.
Tax proposals in the budget were an outcome of predictable announcements and progressive policy thinking, aimed at course correction by the tax administration, to treat the taxpayer as a customer. At the policy level, commitment to implementation of general anti-avoidance rules (GAAR) from April 1, 2017, and proposal for implementation of country-by-country transfer-pricing reporting standards signify convergence with global tax policy, in the wake of OECD/G-20-led works on the BEPS initiative. Deferral of PoEM as a test of tax residency of foreign companies in India to April 2017 is a welcome move and shall provide time to gear up to meet this important policy shift.
Similarly, a proposal to bury the bogey of retrospective legislation is welcome and hopefully, the one-time settlement in lieu of payment of taxes with immunity from interest and penalty shall partly undo the damage caused by the 2012 legislation.
The most prominent miss on tax policy front was the absence of a definitive roadmap for Goods & Services Tax (GST). Perhaps, this tax policy reform is best left for the legislature to guide the way forward. Corporate tax for start-ups and MSMEs have been rationalised to 25% and 29%, respectively, though an across-the-board cut in the tax rate will need to wait, given compulsions on the revenue side. The revenue secretary felt that an across-the-board reduction could have meant a burden of R12,000-15,000 crore, which the FM could ill afford. Having said that, he did press the button to phase out tax exemptions largely in line with the draft proposal, except giving an extension to SEZs by April 1, 2020 (instead of April 1, 2017).
The proposal of ‘equalisation levy’ for foreign e-commerce enterprises on B2B transactions is another step towards alignment with action point 1 of post-BEPS policies.
Several proposals to usher in administrative reforms are transformative, if executed well. In particular, the roll-out of the alternate dispute resolution framework can potentially reduce disputes clogging the system and its impact will be felt in the medium- to long-term. A far more simplified scheme for income declaration gives one time compliance opportunity to delinquent taxpayers with an incremental tax cost of 15% over and above the base tax rate of 30%. Rationalisation of quantum of penalty to reasonable range of 50-200% (instead of 100-300%) is yet another progressive reform.
In conclusion, Budget FY17 is an impactful one and sets the tone for course correction, both at the fiscal as well as the regulatory front.
Assisted by Sumit Singhania