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India's slingshot moment

February 03, 2018 09:45 IST

The transformational reforms like GST, Bankruptcy Code and recapitalisation of banks, Black Money Act, demonetisation, flexible inflation targeting and adoption of fiscal discipline (FRBMA), etc, have temporarily and purposefully pulled us back only to propel us forward with greater velocity, Rajiv Memani.

Illustration: Uttam Ghosh/Rediff.com

The Budget 2018 vindicates the necessary focus on agriculture, healthcare, employment, education and infrastructure.

 

The creation of the world’s largest health protection scheme is a landmark move and could have a tremendous multiplier impact.

For India Inc, the Budget has responded positively with a corporate income tax rate reduction to 25 per cent for companies with turnover of up to Rs 2.5 billion in FY16-17, consistent with the global theme on tax competitiveness.

While other corporates might be disappointed, the move is expected to have a positive impact, considering 99 per cent of corporate tax filers fall in this bracket. It should lead to a greater surplus and confidence, improving private investment.

Further, the benefit of an additional 30 per cent deduction available to corporates on emoluments for new employees has been relaxed both for the period of employment and with regard to employment spread over two financial years.

As promised earlier, the government has sought to address the tax issues surrounding companies seeking resolution under the Insolvency and Bankruptcy Code.

The rigours of restriction by having to consider lower of unabsorbed depreciation or brought forward business loss for calculation of book profits under Minimum Alternate Tax (MAT) has been relaxed to enable such companies to club both together.

The Budget has introduced long-term capital gains tax, proposed at 10 per cent, on long-term assets being listed equity, or a unit of an equity-oriented mutual fund or business trusts.

The concessional rate of 10 per cent tax for equity shares is conditional on acquisition being subject to the Securities Transaction Tax.

This can lead to confusion regarding applicability to shares acquired as bonus, preferential issue, prior to listing, etc.

Further, will the benefit be extended to companies seeking listing is debatable. Hopefully, these will be addressed before the enactment, or through a circular.

The expectation on rationalisation of the Dividend Distribution Tax (DDT) does not find favour in the Budget and corporates would have to continue to contend with the cascading impact of DDT, which puts India at a disadvantage in a present global context.

In line with the Organisation for Economic Co-operation and Development’s BEPS Action agenda, the Budget seeks to provide an evidence of the government’s resolve towards protecting the tax base in cross-border scenarios.

It has sought to redefine the contours of a taxable presence in alignment with the broadened definitions under the multilateral instrument to which India has subscribed. Further, it has introduced the concept of significant economic presence to address the emerging digital economy.

The proposal to introduce a new scheme of e-assessment for eliminating the interface between the department and taxpayers should enhance efficiency and transparency, thereby improving the ease of doing business.

All-in-all, the Budget holds the line of stability and predictability in tax proposals.

With a consistent and steadfast stance on fiscal discipline, it is commendable what is being proposed for MSMEs and business at large.

This is evidently a ‘slingshot’ moment for India since the transformational reforms like the Goods and Services Tax, Bankruptcy Code and recapitalisation of banks, Black Money Act, the much debated demonetisation, flexible inflation targeting and adoption of fiscal discipline (FRBMA), etc, have temporarily and purposefully pulled us back only to propel us forward with greater velocity.

As we wait to surge ahead, the headwinds of crude prices and the tailwinds of revival of private investment and global growth will play a pivotal role for the economy.

Rajiv Memani is chairman and regional managing partner, India region - EY.

Rajiv Memani
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