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Budget 2016-17: Will BJP show resolve to rationalize taxes, push through GST?
New Delhi, February 22, 2016
Even as the nation prepares to hear President Pranab Mukherjee’s address to a joint sitting of both Houses of Parliament, expectations are high for the consumer and industry on both the Railway and Union Budgets for 2016-17.
Travelers expect more rider comfort on trains at competitive prices and consumers expect rationalization of the tax structure with a possible push-up of the entry level of taxation to Rs 3 lakh and industry hopes for a firmer resolve from the BJP-led NDA government for a faster push to the Goods and Service Tax (GST).
The President’s address, which is seen as a statement of the government on policy and other issues at the beginning of the Budget session, is likely to focus on a host of issues ranging widely from security concerns, both internal and external, good neighborly relations and strengthening India’s ties firmly with the developed countries in the West, besides addressing issues as industrial and GDP growth, need for greater economic reforms to facilitate greater foreign investments , import export issues and social issues.
Expectations from the Railway Budget would be that the government does not raise passenger fares across the table, but restrict it to upper segments and freight rates are not raised as prices of fuel are stable and crude prices keep crashing day by day – the lowest price recorded so far is US$26 per barrel, there are hopes that it could go down as low as US$20 to a barrel and eventually stabilize at US$ 40 per barrel.
A general perception is that Finance Minister Arun Jaitley will not hype the 2016-17 budget as he did the 2015-16 budget as it was Prime Minister Narendra Modi’s first budget as a leader at the Centre. A flash back to 2015-16 budget shows that issues like removing concerns on taxation and GST are yet to be addressed seriously.
Yet the Modi government has been pro-active on the economic front because as measures such as inviting Foreign Direct Investment (FDI) in railways and defence, reforming insurance and labor sectors and pushing through defence deals such as purchase of advanced jet fighters from France and creating incentives for infrastructure growth. Also, deregulation of diesel prices show the Prime Minister's intentions to boost the Indian economy and usher in growth that provides greater employment opportunities and goods at affordable costs.
Prime Minister Modi has stated his resolve to stamp out what he calls tax terrorism from India, an apparent reference to retrospective legislations on tax demands on industry. There seems to be some hope on the GST legislation going through in the ensuing budget session, but persistent opposition in the upper house Rajya Sabha, acts like a dampener. The roll out date for GST set by the Modi government is April 1, 2016, so, a tough task lies ahead for the government to iron out the differences with the opposition, especially Congress in the Rajya Sabha to seek approval for the GST legislation.
The government, industry says, has issued guidelines on determining the Place of Effective Management (POEM) for companies, listed in the Memorandum to the Finance Bill, 2015, the Central Board of Direct Taxes (CBDT) has attempted to bring increased transparency into the system. As industry faces deregulation in respect of putting up subsidiaries abroad, Indian businesses are expected to enhance their scalability, assuming the new rule ensures an transparent and equitable compliance.
As the BJP led NDA is now into the second year of its five-year tenure, industry hopes the igovernment would put in place a robust tax regime in the country that deals firmly with tax evasion and other tax related concerns. Hopes from Finance Act, 2016 soar high with respect to bringing a healthy and robust tax regime in India. Setting up of an unflinching tax regime should be a major goal for government in this year’s Budget, since a temporary approach to collect fatter revenues does little for the larger cause of the Indian tax system, taxation experts say.
Pre-budget consultations steered by Finance Minister Arun Jaitley and his team of policymakers, ahead of the announcement of Union Budget 2016-17 on February 29 this year, are already in motion. At a recent pre-budget consultation meet, Jaitley implied the focus of this year’s budget could revolve around the social sector, inclusive growth being the focal point this year for the government. Earnest suggestions and ideas laid before the Finance Minister by representatives from sectors like banking, social, IT, small and medium enterprises (SME), agriculture, education and healthcare, have raised hopes for positive changes in these sectors.
Some important demands include the appeal from Health Federation of India for a health budget including tax sops and financial aid for a better infrastructure and medical innovation. The spend on heath is sought to be raised from 0.3 per cent to 5 per cent of the GDP.. Other demands from social spheres include increase in pension amount of widows and senior citizens, greater budgetary allocation for secondary education, ao also for National Mission for Sustainable Agriculture under Krishi Unnati Yojana, provision for a comprehensive crop insurance, enhanced irrigation facilities for alleviating farm woes, construction of shelter homes for single women and destitute and more allocation for Mid day Meal Scheme.
In view of problems faced by start-ups, such as the load of compliance and cash outflow for the gingerly set up businesses, IT body Nasscom has asked for removal of direct and indirect taxes for such companies. What this means in effect is that “angel tax”, which is the crucial means of funding companies turn to, be removed at a time when banks and venture capital funds pull away from providing financial aid to the start-ups. As investing in start-ups that are still in their nascent stage involves a risk, it becomes necessary to have reasonable tax rates for investors.
Raising public spending and inviting private investment could be a step towards making people financially more comfortable and at the same time boosting the economy’s growth. For instance raiising public expenditure could be a doorway for inclusive development. Investing in more infrastructure projects like Bharatmala Sagarmala by government could be a measure. The fruition of the project would not only provide employment opportunities to a lot of people playing out in their favor financially, but would also shore up the standard of the country’s infrastructure.
As crude price and mineral prices fall, investing in more infrastructure projects could be in the offing. Current indications show that the fiscal deficit target could leap from 3.1 per cent to 3.3 per cent, since government is mulling revision of the same. Fulfillment of fiscal targets is critical for a developing country like India.
Private investment, on the other hand, has an imperative role to play in enhancing economic growth, boosting tax generation and creating more job opportunities, thereby bridging income gap, experts point out. Investors now have the liberty to choose the location for their investment and are no longer required to petition for their investment proposals before the government.. The bankruptcy code is legislation to watch out for.
Manufacturing sector will seek a further hike in anti-dumping duties from the government. Since the devaluation of Chinese yuan and its consequent inclusion in the IMF basket, the chances of China dumping its cheap goods into the Indian market, have risen considerably. The potential scenario of China dumping (cheaper) goods in India and thereby attracting hefty sales could land domestic manufacturers of India in jeopardy impacting sectors including SME’s..
On GST, the rate has been proposed at 17-18 per cent by the Arvind Subramanian panel, to result in a lower service tax rate. This brightens prospects of GST being discussed in the upcoming Budget.
Measures to combat issues like black money, mounting NPAs for banks (March 17, 2016 being the deadline given by RBI to banks for clearance of balance sheets), indebted discoms, as also problems crippling growth in power industry preventing self sufficiency in energy will all cry for a solution in this budget.