• Tuesday, Oct 04, 2022
  • Last Update : 10:24 am

OP-ED: Getting back on track

  • Published at 09:00 pm January 31st, 2021
Indian farm protesters

Will the Indian government deliver on its promises?

India Union finance minister Ms Nirmala Sitharaman is going to present the union budget for fiscal year 2022 on February 1, on Monday, amidst a lot of challenges to bring back the economy to track and, more importantly, to put India on a sustainable growth trajectory and bring back confidence amongst all economic operators.

Paperless budget presentation

The Union Budget of India 2022 is going to be completely paperless in the wake of the ongoing coronavirus pandemic. This will be the first time since independence that the budget papers will not be printed. The Centre has received permission for the same from both houses of parliament.  

In a normal year, the preparation and printing of the budget papers is an important and elaborate event of the Finance Department.  

Approximately 100 staff across ranks including a few very senior officials lock themselves within the facility at North Block for a period of several weeks for this purpose.  The first day starts with a halwa ceremony where the finance minister joins the staff to cook the halwa sweet for the staff.  The staff don’t contact anybody, nor do they get out of that facility till the budget papers get presented in parliament.

Unlike and like the previous years, analysts’ eyes are of course focused on how Finance Minister Sitharaman will create fiscal space to support the lower echelons of society and the economy, invigorate an impetus for further investment across the states and federal economy. For doing so, several fiscal and monetary steps were being discussed the last few days regarding personal tax, corporate tax, further stimulus, and special packages, including re-synergizing the entire social safety net programs.

Expectations regarding corporate tax

1. Ease of taxes for MSMEs: It is suggested that one lump-sum tax, covering both direct and indirect taxes, should be imposed on small businesses. 

2. Alternate system for tax dispute resolution such as mediation: A framework should be set up for settlement of demands payable by the taxpayers arising out of any assessment, as an alternate dispute resolution mechanism instead of appeals and litigation.

3. Relief for infrastructure and distressed asset investment: Exemptions or a lower rate of tax on the gains realized from unsold inventory should be provided. Entities engaged in real estate and infrastructure business should be exempted from gains, if any, on the sale of distressed assets.

4. Reduction in tax rate for firms/ limited liability partnerships: Reduction in tax rate should be made applicable to firms/limited liability partnerships in line with reduction in rates for companies.

5. Carry forward and set-off of business losses: Unabsorbed business losses should be permitted to be carried forward indefinitely. There would not be any immediate loss to the revenue for the next few years but would improve cash flow in industries having losses due to the Covid-19 pandemic.

6. Tax collected at source (TCS) on sale of goods: A seller of goods is required to collect TCS u/s 206C(1H) on receipts exceeding Rs50 lakhs in a financial year. The provisions may not be made applicable in sectors which have a large consumer base like power or retail. This will help to reduce compliance burden for many taxpayers.

7. Companies opting for lower tax regime u/s 115BAA in accounting year 2021-22 or subsequent years may be allowed to adjust opening Written Down Value (WDV) of fixed assets with brought forward unabsorbed additional depreciation. Such companies may be allowed to adjust brought forward minimum alternate tax (MAT) credit. This will help many companies to plan their tax liabilities in a better way.

Expectations regarding personal tax

1. In view of the Covid-19 pandemic, the income and savings of many taxpayers have reduced. Hence, the basic exemption limit available to individuals should be enhanced. Investment limits under section 80C should be increased. Standard deduction available to employees under section 16 may be enhanced.

2. Setting up space at home for official duties: Allowance from employers to employees to set up office infrastructure at home (such as office furniture, laptop, printer, etc) should not be taxed to encourage consumption. One can make the allowance conditional, eg, linked to expenditure and subject to GST.  

3. Deduction for laptops/computers: Specific deduction to be allowed to salaried individuals once in 2 or 3 years for purchase of laptops and/or printers.

As one can easily see, expectations are high from the business community; however, one should also sense the resources required by the lower rungs of society as they may absorb a large part of what the government can do, even as it goes about increasing the fiscal deficit. Prime Minister Narendra Modi, in his initial dialogue with the media on budget, said: "We have in fact given 4-5 mini-budgets during 2020 in order to cope with COVID challenges." The ensuing budget would try to ensure and facilitate a recovery path for the Indian economy and will help it go back on the right track. 

Recovery of an economy holding the expectations of around 1.3 billion people means a lot to global economic recovery. We therefore expect sensible leadership from the Indian politicians and policy planners. Good luck to Finance Minister Sitharaman and her team. 

Mamun Rashid is a partner at PwC Bangladesh. However, opinions expressed in this article are entirely his own.

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