2017-18 is going to be unique in many aspects. It will be for the first time that Railway Budget
will be merged with the general Union Budget. And for the first time, the Union Budget
will be announced 1 month in advance on February 1, 2017.
The Indian economy was growing at a healthy pace of 7.6 percent, when the demonetization drive suddenly slowed down the pace of the economy. Liquidity issues are impacting businesses, especially where the cash transactions were dominant - for example such as FMCG, automobiles, real estate etc.
Due to the reduced demand, we expect the budget
to boost growth by announcing some out of the box changes.
Direct tax reforms
As indicated by the Finance Minister in December, there is a clear understanding that lowering of tax rates widens the tax base and increases the revenue collection. Hence there is a strong expectation of lowering of Income tax for individual tax payers as well rationalization of tax structure for the corporates.
For individual tax payers, we are expecting the government to increase the tax exemption slab from Rs 2.5 lakhs to Rs 3 lakhs. There may also be a reduction in the tax rates.
For the corporates, we expect simplification of dividend distribution tax which is triple taxation (corporate income tax, then dividend distribution tax and then tax on the dividends in the hands of recipients). Single taxation at a uniform rate would be crucial to attract investments in the economy.
Corporate tax rate should not be more than 25 percent at this juncture from the headline rate of 30 percent. The dividend distribution tax rate should also be reduced from 15 percent to 10 percent and minimum alternate tax from current rate of 18.5 percent to 15 percent.
Widening the tax base would help increased tax revenue and more social and infrastructural spending.
There has been a disagreement between the central government and states regarding the GST implementation. With the winter session of Parliament being washed out as a result of demonetization protests, this year’s budget
is expected to introduce of a much watered down version of the GST.
may also focus on bringing 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 further rationalization of subsidies.
Tax saving measures
There is a need to stimulate savings in the economy. Threshold limit of Rs 1.5 lakh under Section 80C benefit may be raised to Rs 2 lakh to boost savings in the economy.
Another populist announcement may be made for the elderly. The pension income for senior citizens be made completely tax free. This will not only help the elderly but will also reduce operational work for income tax authorities
Measures to boost digital transactions
To reduce the black money generation after the demonetization, the budget
is also expected to promote cashless transactions.
Discounts when using cards, waiver of merchant discount rates when using debit cards at POS terminal, etc. have already been implemented though for a limited time. Additional benefits to those opting for cashless transactions through credit cards, debit cards and mobile wallets are expected to be part of the Union Budget
2017-18. Additionally, there might also be benefits announced for use of payment bank services that mainly target the unbanked and under-banked sections of society.
Last year’s budget
made key announcements that promoted low cost housing and offered cheaper home loans to individuals who opted for amounts of up to Rs. 35 lakhs during the 2016-2017 fiscal. These benefits might be extended for the 2017-18 period. Additional tax breaks for those involved in the construction of such affordable housing are also expected.
Due to lesser availability of new currency notes, the Rabi season yield is expected to be lower than usual. To avoid this translating into food inflation, the govt. may take steps like additional benefits for farmers as well as greater access to cashless transaction modes so that they can purchase seeds, fertilizers and other agricultural essentials with greater ease.
The central plan outlay for agriculture should increase to 7 percent of the total planned outlay, to give agriculture a shot in the arm.
Due to the merger of the Rail Budget
with the Union Budget, populist measures may be expected which focus on development of infrastructure. The recent train accidents are expected to give further impetus to government spending on railways modernization.
Finally, there should be sector specific announcement to promote foreign investment as well as to improve India’s ranking on Ease of Doing Business.
Dr Mahesh Gupta is chairman & managing director of Kent RO Systems Ltd, and immediate past president of PHD Chamber