The words reform, perform, transform outline the vision of the government to achieve a $5 trillion economy and the Union Budget 2109 proposals seem to be set upon the underlying philosophy, to promote domestic deregulation and trade liberalization, encourage foreign direct investment (FDI) and achieve macroeconomic stabilization by reducing fiscal deficits with special emphasis on ease of doing business in India.
Upliftment of the masses, by strengthening the capital markets, banking and financial services sectors along with promotion of the 'Digital India’ initiative and pollution free India is noteworthy. The proposal to rationalize the archaic labour laws into four labour codes is commendable and shows the intention of the government to promote labor and youth welfare.
The government’s initiative to tap external savings in external currency will ease pressure on domestic savings and interest rates. This will facilitate better transmission of the repo rate reduction to the lending rates and boost credit growth. The government shows substantial reliance on off-budget resources and public-private partnerships (PPPs) to enhance infrastructure investment. Concrete plans for enabling the ambitious five-year infrastructure program with an investment volume of Rs 100 lakh crore will await recommendations from an expert committee that will examine long-term development financing options.
On the tax proposals for corporates, the finance minister has provided a level playing field for almost all domestic companies which will now be taxed at 25 percent if the turnover/gross receipts is up to Rs 4 billion as against the earlier threshold of Rs 2.5 billion. This increased threshold will cover 99.3 percent of domestic companies. Unfortunately, the base rate for LLP’s continues to be 30 percent.
To propel economic growth and ‘Make in India’ initiative, investment-linked income tax deduction under section 35AD will be given for mega-manufacturing plants set-up in sunrise and advanced technology areas such as semi-conductor fabrication, solar photo voltaic cells, lithium storage batteries, solar electric charging infrastructure, computer servers, laptops, etc. This will directly enable job creation, bring in new technology and upskilling of manpower.
Prime Minister Narendra Modi-led government in its first full term made concerted efforts by digitising the tax administration and creating framework for easing compliance for taxpayers. The e-assessment regime, which has been announced today, is set to bring paradigm shift by implementation of faceless scrutiny assessments (i.e. without human interface and not disclosing specifics of assessing officer). This will aid in substantial reduction of time spent in assessment matters.
Angel tax has gained much attention from the start up community due to uncertainty prevailing in the tax treatment. The finance minister today announced eligible startups shall not be scrutinized on angel tax issue upon filing of requisite declaration and information in returns in respect of valuation of share premiums. This will set aside the controversy which has been hovering for quite some time over startups which have gained maturity and are attracting investors with fancy valuations. Special administrative arrangements are expected for quick redressal of grievances and tax issues faced by startups. Conditions for carry forward and set off losses for eligible startup have been relaxed (i.e. carrying forward of losses allowed even where shareholders continue to beneficially hold 51 percent voting power).
International Financial Services Center (IFSC) has always found special status in the past budgets. Keeping this trend intact, among other incentives, 100 percent profit-linked tax deduction will be given to an IFSC in any ten-year block with a 15-year period including exemption from dividend distribution tax among others.
The IT/ITES sector has become one of the most significant growth catalysts for the Indian economy. Export revenue of the industry is expected to grow 7-9 percent year-on-year to $135-137 billion in FY 2019. The industry is expected to grow to $350 billion by 2025. The sector, which is expected to contribute at least 10 percent to the $3 trillion economy, has not found much favor in the budget proposals and it will have to now await its turn hopefully to gets it long sought-after tax holiday in Budget 2020.
While Budget 2019 seems to be well thought through and has addressed most sectors, it will be interesting to witness its far-reaching impact on the projected sluggish industrial growth and whether it propels corporate India to spring forward. The government continues to track high value transactions. It is expected that the above measures will lead to widening of the tax base and eventually an increase in the tax-gross domestic product (GDP) ratio.
With inputs from
Rajiv Chugh is a Partner and National Leader, Policy Advisory and Specialty Services at EY India Ankur Singla, Director, Policy Advisory and Specialty Services, EY India