Union budget 2021: In the last couple of years, the Government has been rationalising the rates of corporate tax, slashing them to 15% for new manufacturing entities, and 22% for all corporates.
By Rohit Jain
Union Budget 2021: The most-spoken phrase before Budget 2021-22– “raise resources without raising taxes” – has now become reality, with the Hon’ble Finance Minister’s delivery of the Union Budget proposals. The thrust of the Government’s revenue augmentation strategy has shifted from the traditional bias towards tax collection to measures such as asset monetisation and disinvestment. The increase in budgeted capital expenditure from 1.9 to 2.5% of GDP, without a corresponding increase in tax rates, is a credit to policymakers. The Government has laudably opted to take a big punt on buoyancy in the economy, which it will attempt to achieve through significant infrastructure spends by asset monetisation.
In the last couple of years, the Government has been rationalising the rates of corporate tax, slashing them to 15% for new manufacturing entities, and 22% for all corporates. These rates are now amongst the lowest across the globe. In doing so, the Government took an important step forward to attract investment and incentivise manufacturing in India. While this was a great move, it did not yield the investor interest in India as expected.
One of the likely reasons for this is that India has suffered a relatively poor reputation when it comes to the stability of its tax regime. By not tinkering with tax rates this year – whether corporate tax, personal income tax, peak rates of Customs duty or GST – the Government has sent out a strong signal to the larger global community of investors that India is indeed a stable tax regime where they should be looking to invest.
The low corporate tax rate, especially when coupled with the increasing digitalisation of tax compliance and mechanisms for early dispute resolution, should serve to improve investor sentiment. On this count, the Government has taken some bold steps in this Budget to usher in certainty and ease of doing business, such as halving the time limit for reopening of assessments, further reducing the deadline for completion of assessments, extending faceless proceedings to the Income Tax Appellate Tribunal and creating a new Board to issue timely advance rulings on tax positions (having recognised that vacancies in the current Authority had resulted in significant pendency).
On the Customs side, the rate changes proposed are purely to incentivise the growth of domestic manufacturing in sectors such as mobile parts, certain heavy capital equipment etc., given the stiff competition faced by these manufacturers from imports into India. Such increase in tariffs is a global trend, aimed at reducing imports to nurture the development of local industries. While certain steps in this direction had already been taken as part of the “AatmaNirbhar Bharat” initiative, including favouring local suppliers under Government procurement contracts, the proposed increase in import duties will help further bolster manufacturing within India and in turn aid economic recovery.
The Hon’ble Finance Minister also indicated that a larger exercise of weeding out outdated customs exemptions is being undertaken, with 80 such instances having already been eliminated, and a further 400 exemptions to be reviewed in the course of the coming year.
Rate changes aside, similar digitalisation and ease-of-doing-business measures have been brought in under Customs as well, with the introduction of a common portal on which notices/ summons/ orders etc. will be e-served, and on which importers will be permitted to make certain amendments to their bills of entry themselves, without the cumbersome process of seeking permission from Customs. In a first, a cap of two years from the date of initiation of audit/ search/ seizure/ summons has been fixed for Customs investigations.
While changes in the GST rate structure are not typically consolidated around the Budget, one important announcement is that steps will be taken to eliminate inverted duty structures under GST. This is a heartening development which will undoubtedly help improve cashflows for businesses. Another important change is the removal of the need to provide an audited reconciliation statement along with the annual return, which was a fraught process, taking up much of the taxpayer’s time and effort.
Overall, India’s long-running objective of achieving stability in tax regime and minimising disputes, appears to have been achieved in this Budget. It is hoped that these measures pave the way for a thriving national economy in the near future.
(Rohit Jain is a Partner at Economic Laws Practice. The views expressed by the author are his own.)