India’s GDP is expected to grow by 7.1% for FY17, while China’s GDP grew by 6.7% in 2016. Seen in the context of global growth, India is likely to outpace others.
India’s GDP is expected to grow by 7.1% for FY17, while China’s GDP grew by 6.7% in 2016. Seen in the context of global growth, India is likely to outpace others. Also, as seen from the success of the recent state investor meets, there is a strong preference to invest in India. The focus of our policies should now be on hastening the process and ensuring big-ticket investments are made in ‘manufacturing’ that creates employment in the country.
With anticipated shifts in wholesale inflation, surge in crude prices, instability in global markets, the government should also clear the air and reiterate its commitment to reduce the overall fiscal deficit. An improvement in our sovereign rating is crucial to ensure that we get the cost of capital for business to an attractive level, to invest and borrow in India.
It is also critical for the budget proposals to put surplus income into the hands of the common man through various measures including re-setting personal taxation proposals, to drive consumption and resultant GDP growth.
The government in 2016 took several steps to issue circulars, renew tax treaties and enable taxpayer services. It would help if some of the key recommendations made by the Tax Administration Reform Commission are implemented in 2017. Taxpayers saddled with litigation over high-pitched demands should be allowed to settle disputes with a sense of fairness, including in cases where arbitration on tax matters has been initiated internationally. Our tax rules would need to be tweaked to facilitate this.
Further, taxpayers would like to see the Authority for Advance Rulings (AAR) working to provide certainty for time-bound rulings, which are duly incorporated in the law. Measures announced earlier, including the creation of benches across the country, are keenly anticipated. Equally important is creating better channels to funnel individual savings, especially post-demonetisation, towards infrastructure development, sectors that will create more jobs and into market instruments aimed at long-term development. It would also help if Budget 2017 ensures that new sources of funds, including those committed for REIT/Inv-IT, are suitably incentivised outside of the existing ceiling under 80C.
Developed nations around the world are trying unconventional policies to revive their economies, incentivise repatriation and compete for capital. Against this background, the government should consider reducing the corporate tax rates in India substantially for businesses to stay competitive and invest in India.
Access to capital is another important consideration for corporates. Developing a strong debt market will support the credit needs of the corporate sector. It provides an alternative platform for raising debt finance and reduces dependence on the banking system, which is reeling under the impact of non-performing assets.
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Prime minister Narendra Modi recently inaugurated India’s first International Financial Services Centre (IFSC), GIFT City, where offshore banks have started business and trading in permitted securities has begun. One expects Budget 2017 will reiterate the importance of IFSC for India’s future growth and incorporate suggestions from the global investment community such that a high-end financial services ecosystem is rapidly developed here.
Another key issue is GST, which is more than just a tax reform; it is the means by which business will run and be governed in the country going forward. While corporate houses are gearing up for GST, the government needs to support industry in implementing the change in a timely manner. Measures such as incentivising the cost of adapting GST through specific deductions under the income-tax law would be direct support from the government.
With the state government’s share of income from taxes growing in the economy and set to grow further with GST, the government should incentivise states to spend their budgets with targeted outcomes. Our parliamentarians will have to work closely with the states to legislate on urgent reforms (land reforms, stamp duties, labour reforms and taxation structure for taxes outside GST) such that India becomes attractive for investors.
Additionally, the government’s “digital economy” agenda has assumed a new direction since November 8, 2016. The focus on e-governance needs to continue, by digitising more and more of the government’s processes and moving into a totally transparent digital platform for government procurements. With Budget 2017 around the corner, the finance minister has another chance to transform India and take us to the next level.
Aravind Srivatsan is partner and Sahil Gupta is director (tax & regulatory), PwC.