The new Indian government has created a positive mood among the business community, but what people are calling for is action on the ground.
Finance minister Arun Jaitley has said that the budget will be “pro-reform, growth-orientated, bring stability to the tax regime and policy and give the required comfort to investors”.
With all eyes now on the BJP-led government’s promise of a journey towards sustained growth of 7 to 8 per cent, the time has come for some real action. Robust growth policies and reforms are warranted and expected.
The key theme for this budget will undoubtedly be “development”. While the fiscal deficit, which is commonly believed to curb growth and swell inflation, would be an important indicator, achieving the target of 3.6 per cent for 2015-16 and 3 per cent for 2016-17 should be an acceptable milestone.
The government is looking beyond the normal sources of tax revenues and is considering alternative means of generating revenue, including selling off state-owned companies and the auction of federal resources. It is expected that the proceeds are likely to be about US$7 billion.
There is a lot of anticipation that this budget will pioneer some radical reforms, ushering in fresh investment (both domestic and foreign) in manufacturing and infrastructure.
To attract enhanced investment in the infrastructure sector, minimum alternate tax on infrastructure firms may be abolished as it offsets the benefit that was originally proposed under the normal provisions of the Income Tax Act, 1961.
On manufacturing, the “Make in India” campaign has gathered momentum. However, it has to be ensured that an adequate ecosystem is put in place by state governments and fiscal support from the centre is bestowed to make it a success. This will require a change in mindset of the employable population to return them to manufacturing jobs.
The government has spearheaded a number of initiatives aimed at lifting hygiene standards in India and promoting a healthier environment. Massive projects such as Swachh Bharat Abhiyaan (an investment of $10bn) and Clean Ganga Project ($8bn) are steps in this direction. To provide a boost to these initiatives, the possibility of fiscal incentives — in the form of direct and indirect tax relief — may be considered.
A good idea would be to link Swachh Bharat Abhiyaan, Clean Ganga Project and other initiatives such as the development of 100 smart cities with the Make in India campaign, whereby incentives may be offered to manufacturers to produce items to be used for implementation of these schemes.
The much-awaited introduction of a goods and services tax would be a shot in the arm for a majority of players, especially for manufacturing companies, as it would lead to efficiencies in the supply chain.
From a transfer pricing perspective, the last budget recommended “rollback” provision in relation to advanced pricing arrangements. It was a welcome move and appreciated by taxpayers. However, the conditions, procedure and manner of rollback are yet to be prescribed. Accordingly, the finance minister may consider issuing such guidelines in this budget.
To send a clear and positive signal to investors, there is an expectation of doing away with the retrospective tax on indirect transfer of shares and eliminating the uncertainty surrounding the existing investment structures and transactions.
In the previous budget, the facility of obtaining an advance ruling from the authority for advance rulings (AAR) was extended to resident taxpayers. It was also proposed to constitute additional decision-making offices of the AAR. However, no such facilities have yet been constituted. The existing staff are already burdened with a substantial backlog of cases, resulting in excess of more than one year at times to pronounce a single ruling.
To live up to its commitment of investor-friendly tax policies, the government should consider deferring the implementation of the general anti-avoidance rules. The tax administration and taxpayers need to be better prepared to handle this regime.
To move away from being seen as “tax uncertain” to “tax-friendly”, the last government set up a tax administration reform commission. Good work had been done by the commission and, if implemented, it could hugely benefit the common taxpayer. It is expected that the recommendations may be included in the budget.
This is the time for the finance minister to create a dream budget which will satisfy investors, both foreign and domestic. The endeavour should be to create a stable and tax-friendly regime with the sole purpose of economic equality with sustained growth and development.
Richard Rekhy is the chief executive of KPMG in India and a member of the global board of KPMG International. The views expressed in this column are his own.
Follow The National's Business section on Twitter