Business Wire IndiaThe Finance Minister Mr. Jaitley’s fourth consecutive budget presentation marked many ‘firsts’ for this epochal event. Advancing of the budget roll out by a month permits smooth transition to new schemes and policies from the beginning of new financial year, merger of rail budget with fiscal budget brings development of railways at the centre-stage of fiscal policies; doing away with plan/non-plan expenditure classification to a more contemporary capital-revenue nomenclature will distance economic reform agenda from political leverage. The FM highlighted six major achievements of the government, namely, passage of GST Constitutional Bill, enactment of Insolvency law, significant FDI liberalisation paving way for dismantling of Foreign Investment Promotion Board (‘FIPB’), persistent executive decision making to do away with distortions in tax administration, and renewed focus on employment generation in labor-intensive sectors such as, textiles.
Mukesh Butani, Managing Partner, BMR Legal said, “The budget has an inclusive agenda with more good, less bad and no ugly. The Finance Minister has presented a balanced and well-thought budget keeping in mind the theme 'Sabka Saath, Sabka Vikas', though, I do see undercurrent of move to redistribute income, by alleviating the pain of citizens affected by the demonetisation and a corresponding levy of surcharge on high net worth individuals and large businesses. He has been modest on the estimate of the fiscal deficit of 3.2 percent walking the middle path, with a commitment to study the NK Singh panel on FRBM. The proposal to abolish FIPB is a bold move, expected to reduce M&A timelines, create new investment opportunities for foreign investors. The economic secretary, of course, cautioned that the existing FDI limits on defence etc. And FDI in sectors that entail national security shall be subjected to controls. An interesting announcement has been the creation of integrated PSU oil major, this could lead to consolidation of existing oil PSUs and possibly look at international markets for funding and/or possibility of leveraging on larger balance sheet for bidding for upstream assets, given India's thirst for oil.”
“Tax proposals to political contributions taxability is suggestive of bold moves the Government is keen to pursue. A proposal on the concessional rate of 5 percent on external commercial borrowings up to 30/06/2020 is a welcome move, similarly proposal to exempt certain categories of Foreign Portfolio Investors from indirect transfer provisions reiterates government commitment to provide non-adversarial tax regime. An unexpected announcement in the budget is the proposal to reduce holding period from 3 years to 2 years for long-term gain on transfer of immoveable property, this is going to boost the investment in the real estate sector. Further, keeping up to the expectations, proposals have been made to digitalize the payments including no deduction for the expenditure above Rs 10,000 in cash," added Mukesh Butani.
From a fiscal policy standpoint, the Government has chosen an expansionary approach and proposed significant increase in capital outlays (by more than 25 percent), primarily to encourage public expenditures in eye of sluggish private investments. Given the decline in revenue and current account deficits, 1.9 percent and 0.3 percent of GDP respectively, the FM has assured adherence to long-term deficit roadmap suggested by FRBM review committee.
Gokul Chaudhri, Leader, Direct Tax, BMR & Associates LLP said, “At the outset itself, FM stated the underlying theme of the budget 2017 as – ‘TEC India’ denoting ‘Transform, Energise, Clean India’. Adhering to this theme, the budget proposals largely focus on range of socioeconomic promises for promoting inclusive growth agenda of incumbent government; ushering in greater transparency in public services including tax administration; promoting ‘ease of doing business’ through variety of measures building stronger financial institutions; accelerating infrastructure development; continued pursuit of ‘less-cash’ economy through intensified digitization and calibrated re-monetization initiatives; prudent fiscal management and reforming tax administration to discourage tax evasion and honoring taxpayers.”
“From a tax perspective, the finance minister focused on the small taxpayers, with individual taxpayers having income less than INR 500,000 to have a 5 percent reduction in tax rate, and small and medium corporate entities with less than INR 500 million in turnover to have a reduction in tax rate of 5 percentage points to 25 percent. The extension from 2017 to 2020 to the concessional withholding tax at 5 percent for foreign debt will be helpful. Equally with the repeal of the R&D Cess Act. The change in the transfer pricing regulations have two fold effect - lesser compliance for domestic transfer pricing, and enhanced impact on international transaction with the introduction of secondary adjustments. Thin capitalisation finally enters the rule book with the introduction of limits on interest payment to a percentage of EBITA. India certainly is adapting quickly to international practices," added Gokul Chaudhri.
Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP said, “No major indirect tax related announcements are in line with the general expectation as the nation is on the verge of transitioning to GST. Keeping the service tax rate unchanged and withdrawal of R&D cess are welcome and pragmatic decisions at this juncture for boosting economic growth of the country. R&D cess withdrawal, in particular, will encourage import of technology and compliments the Make-in-India campaign.”
“Reassurance that the government is up to speed on GST implementation work (including IT preparedness) is good news. Also, commitment to initiate GST awareness/orientation for businesses starting next fiscal, reaffirms the collaborative and inclusive approach of the Government to effectively implement GST. The budget 2017 proposals further seek to reduce customs and excise duties on certain inputs and raw materials that are used for manufacturing final products in certain sectors in India. A reduction in duties on inputs helps in correcting this problem and thereby contribute to Make-in-India as it would boost domestic manufacturing. Some of the sectors where such changes in duty rates have been carried out include automobile, renewable energy sector, textiles and petro-chemicals,” added Rajeev Dimri.
Overall, it is a balanced budget that carries forward government’s agenda of tax policy rationalization and simplification on one hand, and ushering in tough measures to curb black money and tax non-compliance on the other.
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