In a bid to spur domestic investment and demand as well as to retain India’s overall competitive environment globally, there is need for across-the-board tax rate cuts for businesses and individuals in the Budget for 2018-19. This was suggested by industry body Ficci to Finance Minister Arun Jaitley in a pre-budget meet in New Delhi today.
Ficci president Pankaj R Patel said that many key global economies are opting for significant rate cuts. For instance, the US is on the verge of historic tax reform that proposes to cut the corporate tax rate from a top rate of 35% to 20% as well as provide relief to individuals. The US tax reform also envisages a complete exemption in respect of dividends declared by foreign subsidiaries of US companies. This is intended to incentivize repatriation of earnings into the US, which is expected to boost investment and consumption. Overall, “it is expected that this reform proposal would spur economic growth and increase overall tax collections. A similar approach should be followed by India,” he said.
Although a roadmap for bringing down corporate tax rates to 25% was laid out in earlier budget, this is not yet implemented across the board. Similarly, one also needs to consider the impact of the Dividend Distribution Tax and the Buyback Tax. Together with the basic corporate income tax, this pushes India’s overall tax rate for companies well beyond 40%, which is quite high.
Talking about GST, the Ficci president said that GST has been a landmark reform. However, going forward, there is a need for convergence to 3-4 rates and to include all excluded items till date. Efforts should also continue to simplify compliance related to GST. Similarly, the applicability of GST on Intra-entity transfer of services within the same legal entity should be removed. There is also a need for clarity on anti-profiteering provisions under GST.
To boost Research and Innovation, there is a need to improvise the Patent Box regime that was introduced in the previous budget. The government should also restore weighted deduction on Scientific Research Expenditure. Alternatively, provision of research tax credit may be introduced.
Likewise, the recapitalisation plan for Public Sector Banks is welcome. This needs to be accompanied with banking sector reforms. “The government should consider further consolidation and even privatisation of some of the public sector banks, having at the most 5-6 large public sector banks,” Ficci suggested.
Urging the government to continue its focus on productive expenditure (infrastructure capex), Ficci said if this requires relaxation of fiscal deficit target, it should be considered.