There was limited guidance in the speech on how the growth engine of the economy shall propel, nevertheless it laid an ambitious vision for India becoming $5-10 trillion economy in 5-8 years, respectively.
Finance minister Piyush Goyal, in his Budget speech, used the word ‘kisan’ (farmer) over 30 times — not surprising. Though there is little on tax proposals in part B of the speech, part A, which focuses on social schemes and business policy announcements, laid emphasis on the former. Besides laying down his government’s accomplishments, the highlight seemed to be increase in taxpayer base as a result of formalisation of the economy, profound change in taxpayer behaviour as reflected in increase of taxpayers, and compliance due to tax reforms pursued. Schemes for unorganised segments of the economy by way of pension and health dominated the speech. For rural distress, the focus could have been on productive capital investments, instead of dole-outs.
On broader policy aspects, besides a brief mention of banking reforms and insolvency code, the business segment has had little to debate on TV. There was limited guidance in the speech on how the growth engine of the economy shall propel, nevertheless it laid an ambitious vision for India becoming $5-10 trillion economy in 5-8 years, respectively.
Though expectations on tax proposals were muted, niggling issues such as angel tax etc could have been addressed with legislative intervention.
Absence of statement on the proposed new DTC, which has an extended deadline of February 28, surprised me. Announcement on income tax department’s digitisation project could be a game-changer. Preceded by Cabinet approval & rebranded as Integrated E-Filing and CPC 2.0, it shall leapfrog tax department’s efficiency, given a threefold quantum of allocation.
The meagre tax rebate (Rs 900-1,000 per month) seems more symbolic than material. Besides the Vote on Account compulsion to tinker with tax rates and slabs, which Goyal smartly avoided, an economic rationale for rebate is to ensure that the growing trend in taxpayer base does not get impacted. Moderate tax rates will increase compliance besides encouraging first-time taxpayers.
An important highlight of direct tax proposals included focus on real estate, particularly for low-cost housing. Besides extending the sunset clause by a year for tax holiday, which was expiring on March 31, 2019, project developers who were paying taxes on notional rent for unsold inventory of houses have been exempted for two years. Following this trend, individuals with second residential house are exempted from such notional rent. Similarly, though the limit of Rs2 lakh deduction towards housing loan remain unchanged, the benefit shall extend to second residential house. Capital gains exemption up to Rs2 crore by way of investment in the second residential house has been introduced.
Though the detailed exercise on Budget fiscal maths will be relegated to Finance Bill 2 of 2019, my observation on tax collection trends in the current year and estimates suggest an aggressive target setting. The Budget on tax revenue receipts reveals a 13% increase in corporate tax collection over the current fiscal on the back of 17% this year. Similarly, individual tax collections (23% increase in current year) are estimated at 17% higher in the next fiscal. The GST target has been revised downwards by Rs1 lakh crore in light of subdued collections, though estimated to increase by 18% in the next fiscal. I hope the burden of these targets doesn’t fall on select taxpayers. Though the guiding philosophy on fiscal maths is driven by 3-year rolling targets, it’s a bold bet partly articulated in the 10-dimension Vision 2030, which will require a herculean effort to accomplish.
The author is Managing Partner, BMR Legal. Views are personal.