October 23, 2017

Tax payer hopes from Budget soar; with ball in Jaitley’s court, will he score a goal or self-goal?

Delhi/India/Politics by

The 2014 Poll Manifesto of the BJP promised to provide a non-adversarial and conducive tax environment and rationalisation and simplification of tax regime. Tax rationalisation for a common man is mainly related to expansion of income tax slabs and lower prices on the goods and commodities. Every year tax payers look towards the finance minister to bring in some good news and some defer their investments decisions based upon changes in Budget.

However, every budget is a package where the government gives something under one head and takes something from the other head to keep the fiscal deficit at lower side. In the poll-bound season, the expectations of people are enormously high especially after bearing the pain of demonetisation. In the pre-budget memorandum of various institutions, requests have been made to Finance Minister Arun Jaitley to expand the slabs of income tax and to bring back standard deduction for the salaried class.

The accounting regulator ICAI has suggested to increase the exemption limit to Rs 3 lakh and expanding the slabs of taxation. The suggestion is to have nil tax on income from 0-Rs 3 lakh, 10 percent on income from Rs 3 lakh to Rs 10 lakh, 20 percent on Rs 10 to Rs 20 lakh and 30 percent on Rs 20 lakh and beyond.

Finance minister Arun Jaitley. PTI

Finance minister Arun Jaitley. PTI

The above said limits are in line with the observations of the Parliamentary standing committee on direct tax code which was proposed to replace the existing Income Tax Act, 1961. The finance minister had stated in his maiden budget speech in 2014 that the government will consider introduction of revised Direct Tax Code after taking into account the comments of various stakeholders. However, it becomes difficult for the finance minister to make any radical changes in the direct taxes which form around 50-55 percent of the total tax collection of the government.

The budget is an exercise where the revenues of the government are matched with its expenditure. During the course of five decades when the present Income Tax Act has been operational, the per capita income of the country has increased from less than Rs 9,000 to around Rs 88,000 in 2015. At the same time, the absolute number of poor has also increased manifold, warranting much larger government outlays besides investment in infrastructure and spends on Defence.

The rise of black money in the economy is also a cause of major concern despite the aspirations of the people for better living standards and their expectations from the government to lower the rates of taxation and to provide a conducive and friendly tax regime has also simultaneously increased. It is, therefore, necessary that these challenges in a growing economy and a developing society are kept in mind, while formulating any changes to the tax laws.

The tax rates and structure should, therefore, be tailored in a way that will ensure sufficient buoyancy and dynamism. As the economy expands and diversifies, the tax policies should match the growing needs of the economy and the aspirations of its people. Ways and means of augmenting revenue should aim at broadening the tax base and also by deepening the trunk to tap both potential as well as concealed incomes and wealth.

Almost 90 percent of the tax base in India comprises individual taxpayers in the Rs 0-5 lakh income slab without commensurate tax yield to the government which translates into around 3 crore assesees. Also, keeping in view the inflationary trends in the economy and the imperative to leave more disposable incomes in the hands of individual tax payers, particularly those in the lower income bracket.

Post demonetisation, the income tax department needs to focus their attention and resources upon higher income groups, untaxed or concealed incomes, and categories and sectors that are prone to avoidance or evasion. The revenue gap resulting from changes in tax structure, if any, should be easily bridged by way of stringent measures to curb and bring to book unaccounted money and through realisation of huge tax arrears and by way of savings from the proposed transition to the investment-linked incentive / exemption regime. Thus, rationalisation in tax structures and tax payer friendly measures coupled with zero tolerance policy on tax evasion may lead to better compliance and low generation of black money in the economy.

It is needless to say that the tax policy and procedures of the government should be fair, just and equitable, they should aim to bring fiscal stability. Fiscal stability together with certainty will no doubt go a long way in sustaining economic growth and development of the country. Time has also come to recognise the contribution of the tax payers and the government needs to do some creative thinking to create a positive impact in the minds of tax payers.

It needs to award and recognise the tax payers based upon their tax contributions. The government may consider providing benefits to tax payers directly in many ways such as preference in delivery of government services, social security benefits, exemption from tolls, benefits in various government schemes etc, which will not just lead to increased satisfaction of the tax payers but also reduce tax evasion and avoidance. This will also endeavor to increase the tax base as the people will be incentivised to show their real income.

Besides this, the corporate tax structure in India is very complicated and is often cited as a reason for lower rank of India in the ease of doing business. In the 2015 budget, Jaitley announced in the last Budget the corporate tax rate will be reduced to 25 percent from 30 percent in a phased manner, the move which was hailed by the corporate sector. However, the same has not yet been implemented for all companies in India and a lot needs to be delivered by the finance minister in this sphere.

With the talks of reducing the tax rates to 15% in the US post elections, the challenge is going to increase further for the finance minister who has to keep alive the ‘Make in India’ mission of our Prime Minister Narendra Modi.

This year, the task of the Finance Minister is going to be very difficult and has to balance the needs and requirements of various stakeholders and still have to look generous besides trying to increase the tax collection, all at the same time. Upcoming Elections in five states, too play a very crucial role, not only they hold road to higher seats in the Upper House, where the NDA is in minority but is also cited as a litmus test of the Central Government after the crucial demonetisation move.

Demonetisation has sucked up 86 percent of the liquidity from the market and also made people stand in long ques outside the banks and ATMs. Many rating agencies and research firms have reduced the expected growth rate of the economy as a result of demonetisation which poses a critical challenge for the finance minister to revive economy after such a bold move. The ball is in the court of the finance minister and it will be interesting to see whether he will be able to score a goal or score a self-goal if he fails to meet expectations.

(The writer is a chartered accountant)

For full coverage of Union Budget 2017 click here.

Mark Zuckerberg criticises Donald Trump’s, says US a ‘nation of immigrants’

Delhi/India/Politics by

New York: Facebook CEO Mark Zuckerberg took to his social network to criticise US President Donald Trump’s anti-immigration policies and his plans to build a wall along the border with Mexico.

In his first week in the White House, Trump signed executive orders for the border wall, withholding federal funding from sanctuary cities and blocking refugees from nations like Iran, Iraq, Libya and Syria.

“Like many of you, I’m concerned about the impact of the recent executive orders signed by President Trump. We need to keep this country safe, but we should do that by focusing on people who actually pose a threat,” Zuckerberg said in a Facebook post on Friday.

Zuckerberg, who recently cleared that he was not running for the top post, criticised Trump’s actions by saying the US is a “nation of immigrants”.

He said that his great-grandparents came to the US from Germany, Austria and Poland, while wife Priscilla Chan’s parents were refugees from China and Vietnam.

He urged Trump to keep the US’ doors open to refugees.

“Had we turned away refugees a few decades ago, Priscilla’s family wouldn’t be here today,” he said.

However, Zuckerberg also appreciated Trump’s announcement regarding finding a solution for 7,50,000 immigrants in the Deferred Action for Childhood Arrivals programme under the DREAM Act.

GST on the anvil: Budget can clear the air over input tax credit, unutilised education cess

Delhi/India/Politics by

It is finally the season for Union Budget 2017, the most awaited event of this year primarily on account of imminent arrival of Goods and Services Tax (‘GST’). With the winter session of Parliament being washed out completely due to political logjam over demonetisation, it is expected that GST introduction may be further delayed by few months. In view of introduction of new indirect tax regime in upcoming months, it seems that this year’s budget may not witness any substantial machinery changes in the current indirect tax legislations. However, government may look at extending some immediate sops to the assessees to further facilitate rationalisation and ease of doing business, in line with overall spirit of GST.

The Central Board of Excise and Customs (‘CBEC’) has already sought suggestions on facilitating the movement towards GST through amendments of service tax rules and procedures as well as procedural simplification. Further, recent amendments have been introduced in service tax rules/ notifications thereby withdrawing certain exemptions and rationalising abatements keeping in view the proposed GST structure.

Various restrictions, exceptions and limitations on availability of input tax credit has led to inequitable situation whereby taxation of services is universal while the credit over tax paid on input services continues to be restricted. In order to correct this inequity and provide much needed relief to industry, service providers would expect some positive amendments in service tax laws in general and, specifically, in the definition of input service to allow seamless flow of input tax credit – basic fundamental principle of GST. This would also, to some extent, negate the likely impact of an upward rate shift on service providers under GST regime.

Representational image. Reuters

Representational image. Reuters

The government could also look at making possible announcements for further pruning of existing exemptions provided in various legislations as a move towards GST. Such exemptions could be in force for years and may have outlasted their utility and purpose. Similarly, certain exemptions or concessions which are likely to become redundant under GST regime may also be targeted for re-alignment.

Further, currently there is no clarity on treatment of unutilised education cess and secondary and higher education cess on account of tax paid on input services as on 31 May, 2015 when such cesses were abolished. It is imperative that the government proposes a one-time utilisation mechanism or refund route in relation to the said unutilised balance which most industry players would have parked in their books as a recoverable but are not in a position to utilise due to lack of clarity.

The government may also tinker with excise/customs rate of certain goods which continue to suffer from an inverted duty structure in order to correct the same. Additionally, it is also expected that in view of the impending GST implementation, the government may propose to refund the entire accumulated credit balance due to inverted duty structure instead of allowing the same to be carried forward indefinitely as this could further aggravate the working capital blockage under GST regime. In addition, usual changes in basic customs duty rates of certain goods, basis recommendations received from industry on account of providing impetus or level playing field, may also form part of indirect tax announcements.

On the administrative front, there is an immediate need for speedy completion/ closure of on-going/ pending audits/ assessments/ litigations keeping in line with the proposed timelines under GST for smooth transition to GST. Similarly, it is also expected that government may propose to amend rules related to refund of input credit in line with rules laid down under Model GST law making them rather time-bound and simple to ensure minimal blockage of working capital for exporters.

Whether the government would like to take up the aforesaid changes immediately as part of what could be the last budget before GST regime needs to be seen. As of now, the biggest focus of the government is to finalise all contentious issues between Central and States and placing GST model laws for final approval of both Houses of Parliament. This is absolutely imperative in order to bring GST well within the timelines committed under Constitutional framework. For this, GST Council would need to move very quickly in closing all open issues and agree on a clear way forward on implementation timelines for India Inc. to efficiently plan and organise themselves to ensure a smooth transition in the next couple of months.

To conclude, the government, eyeing the approaching state elections and the current sentiment, would be looking to play safe by keeping both industry and common man happy on one side and maintaining status quo at large on the other.

(The writers are Partner, and Associate Director – Grant Thornton India LLP)

For full coverage of Union Budget 2017 click here.

BJP to release its UP poll manifesto today

Delhi/India/Politics by

File Photo for representational purposes.

NEW DELHI: The Bharatiya Janata Party (BJP) will on Saturday release its election manifesto for Uttar Pradesh Assembly elections.

BJP chief Amit Shah will release the manifesto in Lucknow.

The BJP poll manifesto will counter the ruling Samajwadi Party’s free smart phone, pressure cooker, e-rickshaws and bicycle to girls. 

Although there is less chance of the BJP going for announcement of some freebies, it will certainly have house for all and jobs for the youths in its manifesto.

Report suggests that the party would skip the Ram Temple issue this time. 

The BJP earlier on January 22 promised a slew of populist schemes in its manifesto for Punjab Assembly polls like providing sugar and ghee at low prices, houses to the poor, land to Dalits and backwards, besides assuring Rs. five lakh assistance to the families affected by militancy.

Union Finanace Minister Arun Jaitley, while releasing the document in Jalandhar, said the BJP’s manifesto is particularly aimed at improving the social infrastructure in Punjab, even as he slammed the Congress for its policies which he alleged paved way for militancy in Punjab in 1980s and termed its 2002-2007 tenure in power as “most dishonest and corrupt.”

Noting that the SAD-BJP government in Punjab is already running ‘atta-dal’ scheme, the BJP manifesto has promised providing two kg ghee for Rs. 25 per kilo and five kg sugar at Rs. 10 a kilo to the blue card holders in the state. 

Uttar Pradesh is set to have a seven-phase polling between February 11 and March 8.

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