Budget 2016: On 29th February, when FM Arun Jaitley will rise in the Lok Sabha to present his third Union Budget, there is a lot which everyone – ranging from the common man, small and large business houses, fund managers, foreign investors etc. – will expect from him. After not receiving equivalent pass-through benefits of falling crude oil prices, being a Good Samaritan & voluntarily giving up LPG subsidies and paying an additional 0.5% ‘Swacch Bharat’ cess on all taxable services, the common man has deserved the right to expect tangible tax breaks in the upcoming budget. While there have been some reports, about the Finance Ministry considering to provide marginal benefits to individuals by increasing the basic tax exemption limits, providing a higher threshold limits for tax deduction at source and promoting the rate of savings by exempting the withdrawals/ pension pay outs of NPS scheme, we also anticipate the Minister to make adjustments for present day inflation by expanding the tax breaks on medical reimbursements and health insurance premium (presently capped at INR 15,000/ INR 30,000 respectively), servicing costs of home mortgages & overall investment limit under Section 80C (presently capped at INR 150,000).
Over to corporates, the context can be set by recalling the Budget speech of 2015, where there was a proposal to reduce corporate tax rate from 30% to 25% in next 4 years, along-with rationalization and removal of some presently available tax incentives/ tax exemptions. The lack of clarity on retrospective amendments including withholding tax provisions, continues to create an unknown cost of doing business in India and taxpayers have been left to the mercy of Courts and Competent authorities to interpret the validity of these provisions, through time consuming procedures. Domestic business houses and global investors look forward to clarity and clear set of instructions which articulate the revenue’s point of view on disputed issues. These views should periodically be made available in public domain & the budget could endorse such a view to prevent future pile up of disputes. Such clarity will go a long way in budgeting long term tax costs, thus being more competitive, domestically and globally and in improving our ease of doing business.
The Easwar committee had tabled its report on tax procedure simplification last month and some of those recommendations echo the tax payer sentiments in their fullest. Enforcement of e-audits, rationalization of Section 14A provisions, deferment of Income Computation Disclosure Standards (tax accounting standards), increasing threshold limit for maintaining books of accounts for professionals/ small businesses, aligning interest rate on refunds with that for shortfall payments, simplifying procedures for obtaining lower tax withholding orders and tax refunds, are some of the (relatively) easier to implement reforms that will go a long way in changing the global perception towards Indian tax bureau.
With India emerging as a bright spot in today’s global economy, the focus will now be on the Finance Minister to frame tax proposals in the context of managing our national fiscal deficit, which is alarmingly high and only next to Brazil. One would need to bear in mind that for fiscal year 2016-17, the FM will also have to budget for new allocations to meet outflows arising from implementation of One Rank One Pension (‘OROP’), Food security bill & Pay commission recommendations; while at the same time ensuring there is enough capital set aside to capitalize banks to kick start credit growth.
It is anticipated that all these will require innovative taxes to be raised without hopefully stroking inflation, test the cost of capital for the Government & resultantly for industry. The FM may have to force a few bitter pills to create a roadmap for long term stability, increasing the tax-GDP ratio while absolutely ensuring that India remains attractive to the rest of the world and continues attracting long term growth capital.
By Arvind Srivatsan & Rajat Ranjan
(Srivatsan is Partner and Ranjan, Manager – Tax & Regulatory PwC India; views expressed are personal)