Financial inclusion reforms along with demonetisation would go a long way to foster inclusive development. Against this backdrop, the PHD Chamber looks forward to a dynamic Budget, which, through effective policy interventions and further reform initiatives, would pave the way for a strong growth trajectory in the coming financial year. For this the government needs to:
Raise revenue from non-tax measures: The forthcoming budget must focus on measures such as disinvestment, diluting stake in public sector banks and insurance companies, unlocking assets possessed by sick public sector units and rationalisation of subsidies.
Streamline the tax rates strengthening the 3Cs of tax policy, i.e. clarity, certainty and consistency: This has to be done by reducing personal income tax from 10% to 5% for the first slab; and corporate dividend distribution tax rate from 15% (excluding surcharge and education cess) to 10%. Minimum alternate tax should also be reduced from 18.5% to half of corporate tax rate, i.e., 12.5% (excluding surcharge and education cess). In addition, investment allowance deduction should be reduced for computing MAT.
Increase taxpayer base: There is a need to widen the tax base, by focusing on tax information network, digitisation, increased use of PAN/TDS and electronic transactions. To increase electronic transactions, government should work on eliminating or reducing charges for such transactions, for instance, removing the levy by government banks on electronic transactions.
Increase disposable income: The tax exemptions kick in too early, so instead of the R2 lakh threshold, exemption should be given to those with income up to R 5 lakh. Also, there is a need for re-introduction of standard deduction, i.e., a flat amount that is deducted from the income, to benefit the salaried class.
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Increase presumptive tax limit: Like for the lower threshold in personal income tax, the presumptive tax limit for professionals and businesses should be enhanced to R2 crore from the present limit of R50 lakh and to R5 crore from the present limit of R1 crore, respectively.
Revise multi-level taxation of dividend distributed (DDT): Elimination of the impact of multiple-level taxation of dividend distributed in excess of R10 lakhs also needs to be done. Presently, the company distributing dividend has to incur and pay dividend distribution tax at 20%, which invites another tax in the hands of individual/HUF/shareholders at 15%.
Boost savings in the economy—To stimulate savings, the R1.5 lakh threshold limit under Section 80C benefit must be raised to atleast R2 lakh. Further, a rebate of R25,000 for attracting infrastructure investments—this existed till March 2013—could be re-introduced,.
Implement GST: With implementation of GST, the growth trajectory will improve by 2 percentage points with a significant improvement in ease of doing business and enhanced employment opportunities.
Avoid overlapping of regulation: The Centre and the states should evolve a mechanism of a single authority undertaking to avoid overlapping, if any, of the activities—dual control of adjudication, assessment, and audit—by either authority. Further, time period for issuance of show-cause notices should be calculated after e-filing and credit matching of returns is done, and not from the date of filing of annual return in case of non-fraud cases.
Carefully implement anti-profiteering clause: Given how the implementation of anti-profiteering measure raises concerns of harassment by officials, there is a need for its better implementation while also ensuring that trade and industry pass the benefits of reduction in tax rates to consumers.
Aid research and development: The government would do well to extend the benefit of weighted deduction on in-house R&D expenditure to all manufacturers by removing the negative list as given in the eleventh schedule of the Income-Tax Act. Also, R&D Cess Act should be abolished.
Aid socio-economic development and CSR expenditure: All CSR expenditure incurred in accordance with new Companies Act 2013 and CSR rules should be treated as business expenditure to eliminate potential disputes. The tax benefit under Section 801A, which is expiring on March 31, 2017, should be extended for at least another five years.
Improve skill development: The government would do well to create more accredited vocational training institutes at different geographical locations for skills, which are in short supply. In addition, the allocation for National Skill Development Corporation should be enhanced to help training and skill development among the youth.
Infrastructural development—Improving the physical infrastructure with targeted outcomes in the areas of road development, quality of railway services, expansion of ports and civil aviation would go a long way. Reforms in the energy sector, especially renewable and clean energy sources must be encouraged.
Generate domestic demand: Also, the interest scenario needs to be rationalised as real rate of interest is still significantly high as compared to advanced, emerging and developing economies. Propelling of domestic demand vis-à-vis significant decline in the costs of raw material and absorbing a major chunk of skilled and unskilled labour in the productive sectors of the economy, is also something the government should look at.
Rationalise the cost of credit: RBI should remove SLR/CRR obligations on long term bonds or deposits raised by banks to fund infrastructure projects. Also, banks and financial institutions should be allowed to give deferment of instalments of term loans for next year, this can be done based on an industry study or on a case-by-case basis.
By- Gopal Jiwarajka
The author is president, PHD Chamber of Commerce and Industry.
Views are personal