By Naveen Aggarwal
India Inc eagerly awaits Budget to assist provide a shot in the arm for the recovering economy. With the economy estimated to contract by 7.7% in FY21, the FM has an arduous process of building a development spurt necessary to steer towards the $5-trillion-dollar vision. It would be essential to get the fundamentals ideal to steer development, spur investment, allow job creation and prioritise expenditure, requiring an intense concentrate on ease of carrying out enterprise and make in India.
Here are some of the policy and tax reforms expectations from the upcoming spending budget:
Make in India and worth creation: Atmanirbhar Bharat will bank heavily on ‘making in India’ and focusing on worth creation with the Budget delivering an opportune platform for the considerably-necessary sector-focused incentives and tax reforms.
The government produced a laudable step by expanding the PLI scheme to enhance India’s manufacturing capabilities and boost exports for 10 sectors. While the contours of the scheme are most likely to be announced outdoors of the Budget, this is a considerable watch out location for the sector players. Further, Budget could most likely announce an raise in custom prices for specific things in the telecom, pharma and electronics sectors for advertising domestic manufacturing.
The government had introduced a low 15% tax price for new manufacturing providers set up just after October 1, 2019. The advantage ought to be extended for circumstances of considerable expansion of current manufacturing outfits and also cover ancillary enterprises such as trading, upkeep services, and so forth.
R&D is the harbinger of worth creation. It ought to appear at incentivising R&D and delivering sops to providers such as reinstating the weighted deduction on R&D expenditure.
A couple of measures that would be useful to strengthen the tax ecosystem for a conducive enterprise atmosphere are
Rationalise tax prices: While the corporate tax prices have been rationalised in October 2020 for domestic providers at 22%, foreign providers/branches of foreign banks continue to be taxed at a higher price of 40%. This inconsistency could be bridged by lowering the tax prices for the non-residents.
Clarity and certainty: While the OECD is deliberating to attain a international consensus to tax digital economies, India launched a unilateral tax measure, ie, equalisation levy in 2020 at 2% to tax non-residents for e-commerce sales and services to India. This law has been criticised for getting broad-based, ambiguous and anomalous. It would augur nicely to concern the important clarifications and iron out the ambiguities.
Similarly, clarity ought to be supplied on the withholding tax imposed in 2020 on e-commerce operators, which includes non-residents, which at the moment endure from ambiguities. The considerable financial presence (SEP) provisions for taxing non-residents undertaking transactions exceeding specific thresholds, ought to be deferred till the OECD achieves a international consensus on digital economy taxation.
Transparency: The government launched a landmark faceless assessment and appeal scheme to topic taxpayers to an unbiased and anonymous audit and appeal course of action beneath a randomly chosen group-based method. If implemented pretty and seamlessly, this scheme could lay a robust foundation to decrease the scope of litigation drastically.
Effective dispute resolution: The government ought to appear at mandating precise time limits for disposal of appeals. The administrative inefficiencies in the Indian Authority for Advance Rulings’ functioning ought to be addressed quickly, and a precise timeline for disposal of circumstances ought to be imposed beneath this course of action. Another business ask is to have a mediation mechanism for an early consensus in between taxpayers and the tax division.
In summary, these investment augmenting measures can go a lengthy way to reinvigorate financial recovery and market massive scale investment. To draw a cricketing analogy, Team India’s current test series victory in Australia reinforces the guarantee that strategic proposals followed by sincere and successful implementation will in the end claw back the Indian economy to victory and achievement!
The author is Partner, Tax, KPMG, India. Views are individual