Budget 2016: On February 29, when finance minister Arun Jaitley rises in the Lok Sabha to present his third Union Budget, there is a lot which everyone will expect from him. After not receiving equivalent pass-through benefits of falling crude oil prices, being a Good Samaritan and voluntarily giving up LPG subsidies, and paying an additional 0.5% Swachh Bharat Cess on all taxable services, the common man deserves the right to expect tangible tax breaks in the upcoming Budget.
While the ministry may consider providing marginal benefits to individuals by increasing basic tax exemption limits, providing a higher threshold limit for tax deduction at source and promoting rate of savings by exempting withdrawals/pension payouts of NPS, we also anticipate Jaitley to make adjustments for inflation by expanding tax breaks on medical reimbursements and health insurance premium (capped at R15,000 and R30,000, respectively), servicing costs of home mortgages and overall investment limit under Section 80C (capped at R1,50,000).
The lack of clarity on retrospective amendments, including withholding tax provisions, continues to create an unknown cost of doing business, and taxpayers have been left to the mercy of competent authorities to interpret the validity of these provisions. Domestic business houses and global investors look forward to a clear set of instructions that articulate the revenue’s point of view on disputed issues. These views should be made available in public domain and the Budget may endorse such a view to prevent pile up of disputes.
The Easwar panel recently tabled its report on tax procedure simplification and some of those recommendations echo taxpayer sentiments. Enforcement of e-audits, rationalisation of Section 14A provisions, deferment of ICDS (tax accounting standards), increasing threshold limit for maintaining books of accounts for professionals/small businesses, aligning interest rate on refunds with that for shortfall payments, and simplifying procedures for obtaining lower tax withholding orders and tax refunds are some easy-to-implement reforms that will go a long way in changing global perception towards Indian tax bureau.
With India emerging as the bright spot in the global economy, the focus will be on Jaitley framing tax proposals in the context of managing our fiscal deficit, which is alarmingly high and next only to Brazil. One would need to bear in mind that, for FY17, Jaitley will have to budget for new allocations to meet outflows arising from the implementation of OROP, Food Security Bill and Pay Commission recommendations, while ensuring there is enough capital set aside to capitalise banks to kick-start credit growth.
All these will require innovative taxes to be raised without stroking inflation, testing the cost of capital for the government and resultantly for industry. Jaitley may have to force a few bitter pills to create a roadmap for long-term stability, increasing the tax-GDP ratio while ensuring that India continues attracting long-term growth capital.
Srivatsan is partner and Ranjan is manager, Tax & Regulatory, PwC India. Views are personal
