1. Budget 2016: From real estate to start ups, what to expect from FM Arun Jaitley

Budget 2016: From real estate to start ups, what to expect from FM Arun Jaitley

All eyes will be on Finance Minister Arun Jaitley on Feb 29 as he would present his Budget speech amid a slowing economy.

By: | Published: February 23, 2016 1:53 PM
Arun Jaitley, commodity transaction tax, ctt, sensex Budget 2016: Although the big task for Jaitley is to come up with a strong plan to meet fiscal goals, it would be interesting to see how he generates resources to fund the additional expenses related to the seventh pay commission hikes along with One Rank One Pension Scheme (OROP). (Photo: PTI)

All eyes will be on Finance Minister Arun Jaitley on Feb 29 as he would present his Budget speech amid a slowing economy. Although the big task for Jaitley is to come up with a strong plan to meet fiscal goals, it would be interesting to see how he generates resources to fund the additional expenses related to the seventh pay commission hikes along with One Rank One Pension Scheme (OROP).

He would keenly be watched by all the sectors to see if key priorities and investment of the government will benefit them.

With the help of Karvy Stock Broking, we broadly outline the key budget expectations of all major sectors.

Auto & Ancillaries: Society of Indian Automobile Manufacturers (SIAM) expects uniform excise duty on passenger cars, a excise duty cut and implementation of GST are top priorities for automobile industry. It has sought for continuation of 10 per cent excise duty and removal of customs duty on steel. Moreover, it has recommended 200 per cent weighted deduction should be extended to R&D facilities, which are outsourced to third-party service providers or other institutions. SIAM places its plea on withdrawing 1 per cent NCCD (National Calamity Contingent Duty). With increasing pollution, vehicles that have run for more than 10-15 years may have to be replaced which could be facilitated by introducing scarp incentives. Allocation of subsidies to promote electric and hybrid vehicles to curb environment pollution.

BFSI: There is a need to explore solutions to address bank balance sheets, as strong banks are pre-requisite for strong economy. Allowing banks to issue off-shore rupee bonds to finance infrastructure. Considering the huge shake-up happening in PSU banking system, substantial capitalisation programme shall be announced. There shall be well-thought out co-ordinated capitalisation program to be drafted so that the health of PSU banking can be restored at the earliest. Further, the programme shall be drafted in such a way that the health of PSU banks shall be sustained for long periods. There should be some clear roadmap in the budget to bring down the shareholding of Indian government in PSU banks to 51-52 per cent as well as on bank holding company structure. Further, incentives for home loan repayments may be announced, especially in the low-cost housing finance space.

Capital Goods/ Defence: The sector expects kick start of government projects which will help them to build their order books, and to make “Make-in-India” a reality.

Cement: Seeks an imposition of customs duty (Nil as of now), imposition of anti-dumping duty and uniform excise duty (Currently, 12 per cent plus Rs 120 per metric tonne).

Dairy: With an annual output of 138 million tonnes, India is the largest producer of milk in the world, but to meet the growing demand for milk and acute shortage of supply, formation of commercial dairies should be promoted. Government should catalyse flow of bank credit to such first generation entrepreneurs for setting up dairies without the hassles of arranging collateral. This can be done by providing back up guarantee to Banks on behalf of commercial dairy owners / promoters.

Farmers and Agri Sectors: Digitisation of land records to can compensate farmers quickly. Direct distribution of fertiliser subsidies to farmers through the Direct Benefit Transfer (DBT) scheme so that savings on this account could be used for increasing public capex spending.

Healthcare: India’s healthcare infrastructure is lagging behind when compared with other developing countries. There exists a huge gap between demand and supply of healthcare infrastructure facilities available in the country. Therefore, it is imperative to create an inductive environment for facilitating investments into the sector. Following measures are suggested to improve the healthcare of citizens:-

– Increase budget share to the healthcare sector with greater provision for the National Rural Health Mission and National Urban Health Mission.
– To promote Health insurance penetration in the country, it should be mandated that organisations insure every employee.
– The employer should be allowed tax deduction on the premium paid. Moreover, the employee should have the flexibility to increase this cover; the additional premium so paid should also be made tax exempt. This should be over and above the cover extended under the ESI, CGHS and other government health insurance schemes.

Home Building Products: The Budget could impose an anti-dumping duty on ceramic tiles from China, which is what other countries, including India’s neighbouring countries have done. This would check unfair competition faced by a growing sector. Ceramic tiles as a whole is estimated to be an over Rs 20,000-crore industry and sanitaryware is an over Rs 5,000-crore industry in India today.

Information Technology: A tax holiday for start-ups (much like that for IT companies during the ‘90s) for a period of 10 years would facilitate India to become the start-up capital of the world. Government may adopt IT for citizen-facing-services and delivery centres in both central and state government. According to Karvy, the focus of this year’s budget to be on digital literacy, improved connectivity and access to technology supported by radical government process re-engineering.

Infrastructure: It is recommended that a suitable amendment may be made in the Act to clarify that besides new infrastructure, the up-gradation/extension of the existing infrastructure facility would also be eligible for the benefit of Section 80-IA of the Act. Government has offered various tax incentives under Section 80-IA of the Act to the infrastructure companies to boost infrastructure. The benefit available to the infrastructure companies under the normal provision of the Act get neutralised since the companies are required to pay MAT on their book profit. To attract more investment in infrastructure sector, MAT on infrastructure companies should be abolished.

Logistics, Retail and E-commerce: The major reform of GST will give the logistics industry a very clear taxation structure and induce a major sea change for the logistics architecture, since logistics will be driven by cost. e-Commerce is booming in India, but different states currently have varying definitions and laws on e-Commerce. A common definition as well as law is needed to govern this sector and help companies operate more efficiently. Such a move will help start-up firm up their investment plans, as well.

In this year’s Budget / Railway Budget, the government is likely to announce new Dedicated Freight Corridor (DFC).

There are several retail companies facing significant losses due to long gestation periods, which can trigger consolidation through M&A in the sector. In order to enable mergers and acquisitions in retail sector, so that the amalgamated entity is able to carry forward the predecessor losses, section 72A of the Act should be extended to retail companies, as currently there is an ambiguity prevailing as to whether retail companies come under the definition of industrial undertaking or not, which is one of the mandatory conditions for carrying forward of losses under section 72A for any merger and acquisition.

Pharma: The pharma products are eligible to excise duty at a concessional rate of 6 per cent keeping in mind the essential nature of the medicines (as per Chapter 30 of the Central Excise Tariff). However, the principal raw material required for manufacturing the pharma products is API (Active Pharmaceutical Ingredient),
is taxed at 12.5 per cent (as per Chapter 29 of the Tariff). This creates an ‘inverted duty structure’ where the rate of duty on the principal raw material is twice the rate of duty of the final product, resulting in huge accumulated unutilised Cenvat credit which finally culminates into higher price of pharma products.

To achieve the objective of Government to provide fiscal advantages to pharmaceutical products can be achieved by reducing the excise duty on APIs to 6 per cent, avoiding an inverted duty structure.

Power: Taking into account that power sector is economically important sector, levy of service tax on input services shall be exempted. Though there are excise/customs duty exemptions for power sector like other infrastructure sectors, still service tax is applicable in respect of various input services procured by power sector.

There are already various service tax exemptions provided to other infrastructure sectors such as canal, dam or other irrigation works, pipeline, water treatment/ sewerage treatment/ or disposal, road, bridge, tunnel or terminal for use by general public etc. In that backdrop, taking into account the significance of power sector, service tax should be exempted for various input services availed by power sector.

Real Estate: The realty sector is just emerging from a prolonged and painful slowdown, and is looking for all and any signs of light at the end of the tunnel. There is need to provide more incentives to boost development and consumption of Green real estate – The Budget should provide clear and convincing benefits to buyers of green real estate in the country. The upcoming budget should allocate an amount specifically for building infrastructure and improving connectivity in the peripheral areas of cities, especially the metros. Without this, it will be difficult to provide affordable housing in the cities. Developers entering this segment should be allowed cheaper financing options, thereby also providing a shot in the arm for overnment’s ‘Housing for All by 2022’ target.

Synthetic Rubber: To protect the natural rubber sector from large scale import of synthetic rubber, parity can be established in import duty on Butyl rubber or IIR which currently has an import duty of 5 per cent, below the level applicable for other major synthetic rubbers.

Start-ups: A start-up friendly tax regime and minimum interference are some of the key factors that can drive the startups into the new era of entrepreneurship. The government should ease the qualification of Angel money, which is often the lifeline and only source of fund for entrepreneurs. Angel investors should be incentivised and given a tax benefit. Waiving off service tax for a period of 3 years will give a huge relief to bootstrapping startups.

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