Union Budget 2019 India: One will also wait to see how the new finance minister deals with the introduction of the new direct taxes code and what announcements are made in this regard.
By Frank D’Souza
Union Budget 2019 India: The Union Budget 2019 is scheduled at a time where reviving a relatively—by recent standards—sluggish economic growth and addressing collection targets are the most important areas for the government as it starts the journey into its second term. Therefore, in an effort towards pushing consumer spending by leaving more disposal income in the hands of the middle class and mobilising private investment without compromising on tax revenue collections, which fund public spending, the Union Budget 2019 could be walking a tightrope for the government.
On the personal tax front, increasing the basic exemption limit may not align with the government’s objective of widening the tax base and, thus, reduction in slab rates could be an alternate that may be considered to reduce the tax burden on the middle class. Although given the sops provided in the Interim Budget in February 2019, this appears unlikely. Also, to channelise individual savings into infrastructure spending of the government, reintroduction of infrastructure bonds with tax incentives may be on the cards.
At the beginning of the first term of the NDA government, corporate tax rate was proposed to be gradually reduced to 25% by the end of the five-year term, from the 30% rate applicable to the corporates. But in the Union Budget 2018, which was the last full Budget of the government, the corporate tax rate was reduced to 25% only for MSMEs with turnover/gross receipts less than Rs 250 crore. With other major economies like the US bringing in tax rate cuts to attract investments, India would not want to be seen as an outlier with higher tax rates amongst major economies. Conversely, fiscal prudence may not permit the government to provide a corporate tax rate cut. However, coverage of corporates within this lower tax bracket may be broadened by increasing the threshold of turnover of Rs 250 crore.
Employment data has been an area of concern in the recent times. To further promote the start-up initiative and MSME growth, tax incentives like exemptions on income from funding activities for the first few years may be provided to the investor community/angel investors. This could help mobilise private investment, generate employment, increase consumer spending, and revive the growth rate.
From the perspective of incentivising sustainable growth through large-scale manufacturing and adoption of electric vehicles, it would not be surprising to see some incentives and tax holidays for manufactures of electric vehicles and batteries or providers of charging infrastructure being introduced in the Union Budget 2019. The incentives may also be extended to the consumers of electric vehicles to take care of the additional cost burden due to higher costs of these vehicles—more importantly, with subsidies that existed in FAME being withdrawn under FAME-II.
Towards addressing the challenges around generation of black money, the government may consider imposition of taxes in the range of 3-5% on cash withdrawal of more than Rs 10 lakh in a year. It is believed that paying Rs 30,000-50,000 on value of Rs 10 lakh can be perceived as a loss by the common man, and this will push the economy towards complete digitisation and keep a tab on the generation of black money.
For the international community, the draft rules released for public comments last month, dealing with allocation of appropriate profits of MNCs doing business in India for taxation in India, may be introduced either in the Union Budget 2019 or around that time. This will have significant implications on many of the MNCs doing business in India, physically or through digital medium.
One will also wait to see how the new finance minister deals with the introduction of the new direct taxes code and what announcements are made in this regard.
(Author is Partner and Leader, Corporate and International Tax, PwC. Views expressed are his personal)