Budget 2019: Is a new tax rate for earnings above Rs 10 crore in the offing?

Published: July 2, 2019 11:31 AM

Budget 2019 India: Perhaps, the FM in her Budget 2019-20 speech could recount Guy Fleetwood Wilson who as a Finance Minister in 1909 remarked 'India’s Budget is a gamble in rain'.

 Budget 2019, Union Budget 2019 India, Budget 2019 India, Budget 2019-20,Union Budgets, Stamp Duty, GST, Income Tax deductions, exemptions, Inheritance TaxBudget 2019 India: The new FM has already broken convention for Budget 2019 India by actively seeking suggestions from the general public rather than confining herself to the world of economists and industrialists.

Union Budget 2019 India: While there is nothing novel about the fact that a Cricket World Cup is held once every four years, a Calendar Year with two Union Budgets is certainly uncommon. The one coming up later this month is eagerly awaited for many reasons. A couple of them are:

1. It is being announced by a new Finance Minister (FM) – whose views on monetary matters are a well-kept secret.

2. It is being presented in the wake of a decisive Election victory for the incumbent, who is only now admitting that the economic situation is not as rosy as what it was portrayed prior to the Election.

The new FM has already broken convention by actively seeking suggestions from the general public rather than confining herself to the world of economists and industrialists. While this could be derided as a neophyte’s naiveté, I believe it is a sign of the Hon’ble FM Ms. Nirmala Sitharaman’s humility and also, perhaps, a signal that things could indeed be different under her reign.

The usual pre-budget clamour for sops has gained new urgency in light of the following:

1. An increasingly murky global trade environment (Exporters)

2. Marked slowdown in several domestic sectors (Industry)

3. A hitherto capricious monsoon (Rural).

Perhaps she could recount Guy Fleetwood Wilson during her Speech. He was a Finance Minister, who in 1909 remarked “India’s Budget is a gamble in rain”.

4. The need to be seen to be ‘doing something’ about the current economic situation (Political)

The Reserve Bank of India (RBI) appears to be obliging, through its interest rate actions and many are keen that India receives some timely fiscal stimulus too.

Can the FM please everyone? Can she sift through the hyperbole and capture only the essence of the angst? Only July 5th will tell.

In the meantime, here is my wish list:

1. GST rationalisation for certain sectors

While I understand that constant tweaking is not advisable, it is also a fact that GST will be a ‘work-in-progress’ for some time. Over the past three years, the Government has realised that some changes are required…and this is a good time to announce them. I would not want to mention specific industries…but in general, rural-facing industries could be considered given the price elastic nature of many rural purchases.

2. Improving the Debt Market structure

While some would aver that this is the RBI’s remit, my point is that certain relaxation in the form of Stamp Duty or transaction levies could help. A deeper and more liquid market will help corporates raise Funds more effectively, and also reduce instances of ‘sweetheart deals’ with Mutual Funds which are entered into, more out of exigency (illiquid secondary markets) rather than actual desire.

3. Parity with Insurance

While I appreciate the need to tax Long Term Capital Gains for Mutual Funds, it is inexplicable why investment-oriented life insurance policies have been exempted. I hope the FM acts to redress this imbalance, this time round.

4. Income Tax deductions / exemptions etc.

To be sure, a lot of reform has been undertaken on this front, over the past decade. I honestly feel that Indian taxpayers do not have much to complain about, when it comes to headline rates and administrative ease in filing tax returns.

However, I feel that the usual entreating towards hiking 80C limits etc. can be obviated by linking this to an inflation index rather than keeping it fixed. This will ensure that taxpayers can save more tax with the passage of time, and also spare the FM from parrying such requests every year.

There are some murmurs of a new tax rate being introduced for earners above Rs. 10 crore. While this is not going to affect many, we should always guard against the temptation of ‘tax rate-creep’ as higher rates are a disincentive in many ways.

5. Inheritance Tax

Globally, this levy is being touted as a way to reduce inequality. India has moved away from it over the past two decades…and I do hope we do not re-introduce it, simply because the administrative difficulties may outweigh the benefits.

As mentioned above, this is more a list of wishes rather than actual predictions. Predicting that India will enter the semi-finals of the Cricket World Cup is probably easier than hazarding a guess on what transpires on Budget Day.

At the end of the day…your guess is as good as mine.

(By Neil Parag Parikh, Chairman and CEO, PPFAS MF)

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