I appreciate the dynamic economic vision of the government in the promotion of growth and development of the Indian economy. The focus on financial reforms, infrastructure build-up, industrial development, growth of MSMEs and agriculture reforms is highly encouraging. The financial inclusion - the Jan Dhan Yojana to the financial revolution - to demonetization are really appreciable and would go a long way to foster inclusive development of the country.
At this backdrop, we look forward to a dynamic budget, which, through effective policy
interventions and further reform initiatives, would pave the way for a strong growth trajectory in the next financial year. The budget
should nudge entrepreneurs to invest more by unveiling investor friendly policies for the employment intensive sectors of the economy.
Raise revenue from non-tax measures
The forthcoming budget
must focus on bringing slew of non-tax revenue generating measures such as disinvestment, diluting stake in public sector banks and insurance companies, unlocking assets possessed by sick public sector units and rationalisation of subsidies.
Streamline the tax rates
Streamlining tax rates is the need of the hour. The focus of the government should be on strengthening the 3Cs of tax policy
– clarity, certainty and consistency. We need simple, clear tax provisions that give ease of compliance and prevent litigation. I suggest personal income tax rate should be reduced from 10 percent to 5 percent for the first slab; corporate dividend distribution tax rate should also be reduced from 15 percent (excluding surcharge and education cess) to 10 percent.
Minimum alternate tax should be reduced from current rate of 18.5 percent to half of corporate tax rate, viz 12.5 percent (excluding surcharge and education cess). In addition, investment allowance deduction should be reduced for computing MAT to give full benefit of investment allowance for boosting economy.
Increase in tax payers base
India has one of the lowest percentage of tax payers compared to other major economies in the world. Presently, there are only 5 crore tax payers in a population of more than 130 crores. I believe government should focus on widening the tax base by expanding the tax net rather than focusing on increasing rates.
To expand the tax base, government should focus on tax information network, digitization, increased use of PAN/TDS and electronic transactions. To increase electronic transactions, government should work on eliminating or reducing charges for such transactions, eg no levy by Government banks on the electronic transactions, etc. In addition, service tax should be scrapped from electronic transactions.
Increase the disposable income
Income up to Rs 5 lakhs should be considered for tax exemption instead of Rs 2 lakhs at present. Government should re-introduce standard deduction, ie a flat amount that is deducted from the income. It will benefit the salaried class as large number of taxpayers comprises of salaried class and pensioners.
Increase the presumptive tax limit
The presumptive tax limit for professionals should be enhanced to Rs 2 crores from the present limit of Rs 50 lakhs. Similarly, the presumptive tax limit for businesses should be enhanced to Rs 5 crore from the present limit of Rs 1 crore. The move will promote ease of doing business, conserve resource of tax payers and officers, and boost compliance.
Revision in multi-level taxation of Dividend distributed (DDT)
The section 115 BBDA introduced through Finance Act, 2016 should be repealed to eliminate the impact of multiple-level taxation of dividend distributed in excess of Rs 10 lakhs in the hands of the company as well as the shareholder. Presently, the dividend distribution tax on dividends received by individuals/HUF/firms in excess of Rs 10 lakhs attracts multiple level taxation of dividend distributed as the company distributing it would have already incurred and paid dividend distribution tax at 20 percent which is again being taxed in the hands of individual/ HUF/ firm shareholder at 15 percent taxing the same dividend twice.
Boost savings in the economy
There is also a need to stimulate savings in the economy. I believe Rs 1.5 lakh threshold limit under Section 80C benefit must be raised to atleast Rs 2 lakh to boost savings in the economy. Further, rebate of Rs 25,000 for attracting infrastructure investments could be re-introduced which earlier existed till March 2013.
Implementation of GST
With regard to implementation of GST, I believe, it will create a common market within India to reduce the transaction costs and cascading impact of complex tax system. With the implementation of GST, the growth trajectory will improve by 2 percentage points with a significant improvement in ease of doing business and enhanced employment opportunities.
There would be certainty that all cess, surcharge, entry tax, octroi, etc. should subsume in GST as presently the manufacturing sector is not able avail Central Value Added Tax credit of Swachh Bharat Cess and Krishi Kalyan Cess (available to Service Provider) and no mechanism provided for utilisation of opening balance of Education Cess & Secondary and Higher Education Cess as on March 1, 2015 & June 1, 2015 by manufacturer and service provider respectively.
Ease of Doing Business
India is ranked 130 out of 190 countries on World Bank’s ease of doing business index. We look forward to the further improvement in ease of doing business and expect it below 50 in the next three years by 2019. With the implementation of GST, we look forward to the reforms in other factors for production majorly in the labour laws and land acquisition. Budget
should provide some road map for the expected reforms in these two very crucial ingredients of production.
Research and development
Promotion of research and development is crucial for the fruitful outcomes of various reforms measures, particularly the ambitious programme of Make in India. Extend benefit of weighted deduction on in-house R&D expenditure to all manufacturers by removing the negative list as given in the eleventh schedule to the Income Tax Act to facilitate and boost research and development among the manufacturers. R&D Cess Act should be abolished as it has outlived its utility and discourages technology up-gradation by foreign collaborators and investments.
Socio-economic development and CSR expenditure
All CSR expenditure incurred in accordance with new Companies Act 2013 and CSR rules should be treated as Business Expenditure to eliminate potential disputes. On the other hand, in order to attract investments in power generation in the longer run, there is a need to extend tax benefit under Section 801A for at least another 5 years, which is expiring on March 31, 2017.
Skill development of the youth is crucial to enhance our productivity in agriculture, manufacturing and services sectors and also to improve our global competitiveness. There is need to create at more and more accredited vocational training institutes at different geographical locations for skills which are in short supply. In addition, the allocation for National Skill Development Corporation should be enhanced to help training and skill development among the youth.
Improvement in physical infrastructure with targeted outcomes in the areas of road development, quality of railway services, expansion of ports and civil aviation would be appreciated and would help the businesses to plan their production possibility frontiers. Reforms in the energy sector are needed to stem the increasing energy import dependence and making the policy
conducive to facilitate transformation and adaptation. Renewable and clean energy sources must be encouraged.
Generate domestic demand
We believe slowdown in demand is a major deterrent for the potential economic growth of the country and weaker level of employment generation. The time is most opportune to generate demand in the economy vis-à-vis significant decline in the costs of raw material and to absorb a major chunk of skilled and unskilled labour in the productive sectors of the economy. Our interest scenario needs to be rationalized as our real rate of interest is still significantly high as compared with advanced, emerging and developing economies. Reduction in EMIs would help increase in disposable income of the people and increased level of savings in the economy.
The forthcoming budget
must bring slew of growth propelling policy
measures to revive demand and re-fuel industrial activity. It should focus on putting the economy on the sustained growth path and look forward to the double digit growth trajectory in the coming times.
Gopal Jiwarajka is the president of PHD Chamber of Commerce and Industry (PHDCCI)