The build-up to Budget FY16 has begun. Many industry bodies and fora have started making representations on the changes demanded by India Inc and the general taxpayer community at large. The government too has reciprocated by openly inviting suggestions from the public with the objective of infusing more transparency into the budget-making exercise and to have people as partners in the process.
The aam aadmi continues to hope that, like last year, the exemption limit for income-tax slab will be increased this year—from the existing R2.5 lakh to R3 lakh. This will aid the middle-class in battling inflation to some extent. At the other end of the spectrum, the 10% surcharge on the super-rich category introduced by the previous government is likely to continue.
In its third report, the Tax Administration Reform Commission (TARC) noted that that less than 4% of India’s population file tax returns and pay taxes. Further, there is a considerable gap between corporates registered with the Registrar of Companies and those that have a permanent account number as mandated by the direct tax laws. Given this, one would expect the finance minister to take some strong measures in this year’s budget to expand the small tax-base of the country. This will not only ensure that the government is able to garner its fair share of taxes through mandatory compliances, but will also mean that the principle of equity is maintained.
Amongst the various sectors which may see some incentives, infrastructure could stand out, given its direct relevance to the development of our economy. In line with the government’s Make-in-India initiative, last year the investment allowance of 15% for the manufacturing sector was further extended and liberalised. It is expected that a similar investment allowance may also be granted to the infrastructure sector. Further, representations have also been made to abolish the minimum alternate tax (MAT) for real estate investment trusts (REITs), infrastructure investment trusts (InvITs) as well as the special economic zones (SEZ). One could also anticipate the reintroduction of tax benefits to investments in long-term infrastructure bonds so that adequate capital remains invested in the sector. If indeed these recommendations are accepted, this will provide a much-needed fillip to the sector so that its full potential is realised.
Also, it will be important for Budget FY16 to clarify the non-applicability of MAT to foreign portfolio investors (FPI), many of which have recently received show-cause notices in this connection.
One may also expect to see some tax incentives being accorded to development of smart cities and domestic manufacturing of defence equipment as both these initiatives feature high on the economic agenda of the government.
In the last budget, the indirect transfer tax provisions were left untouched with an announcement that a high-level committee would be set up to examine fresh cases. However, given the complex nature of these provisions, it may be desirable for the government to amend the law to clarify controversial aspects like threshold and valuation arising out of such indirect transfers so that needless litigation on these points can be avoided.
Last but not the least, it will be interesting to see if the finance minister implements the deferral of the draconian General Anti Avoidance Rules (GAAR) beyond its stipulated date of April 1, 2015. This again will be a morale-booster for the foreign investor community and will send a strong signal that the country is serious about implementing a non-adversarial tax regime.
The wish list is never-ending and, like every year, the finance minister would have to do a fine balancing act this year too.
Given the government’s strong emphasis on its mandate of “sab ka saath, sab ka vikas”, one can expect that the Budget will toe the line.
By Nikhil Rohera
The author is Partner (tax & regulatory services) PwC India. Views are personal