As India stands on the cusp of its 18th general elections, the current ruling party aspires for a third term in its interim budget’s pitch – “Viksit Bharat” (Developed India) by 2047, riding on the trinity of demography, democracy, and diversity.
The five-pronged strategy laid out by Finance Minister Sitharaman comprises (i) sustainable development (ii) promoting foreign investment & infrastructure development (iii) aspirational district-level programs (iv) affordable housing development & tourism promotion (v) impetus on agriculture & food processing.
The roadmap to achieve India’s commitment to net-zero by 2027 includes (i) Viability gap funding for harnessing offshore wind energy potential for an initial capacity of one giga-watt (ii) Coal gasification and liquefaction capacity of 100 MT to be set up by 2030 (iii) Reducing imports of natural gas, methanol, and ammonia (iv) Phased mandatory blending of compressed biogas (CBG) in compressed natural gas (CNG) for transport, and piped natural gas (PNG) for domestic purposes – it is also proposed to provide financial assistance for procurement of biomass aggregation machinery (v) strengthening of ecosystem for electric vehicles including electric buses (vi) launching a new scheme for bio-manufacturing and bio-foundry (vii) rooftop solarization.
In financial terms, the GDP hovers at close to USD 4 trillion (INR 326.8 trillion), with the Revenue and Expenditure estimates pegged at INR 30.8 trillion (lakh crores) and INR 47.66 trillion respectively, and a targetted fiscal deficit at 5.1 per cent of GDP, fulfilling its medium-term vision which was to achieve 4.5 per cent deficit by 2026-27. Tax collections estimated at INR 26.02 trillion will comprise nearly 84.5 per cent of the receipts. According to the revised budget estimate for 2023-24, total receipts are estimated at INR 27.56 trillion, of which tax at 23.24 trillion comprises 84.3 per cent.
Tax collection is estimated to increase by 10 per cent — no change has been proposed to tax rates or policies in the present Finance Bill. Certain exemptions for start-ups, sovereign wealth funds, pension funds and IFSCs relocations expiring in 2024 have been extended to 2025. Notably, and surprisingly, no extension was provided to the manufacturing sector, the condition for the company to be set up & registered by 31 March 2024 remains. A welcome move has been announced in the waiver of small tax demands ranging from INR 10,000 to INR 25,000.
In the past budgets, several amendments have been made to the Finance Bill after the budget was announced, but before it received the President’s assent. Given that this is an election year, it remains to be seen if the government will follow this past trend. As an example in the previous budget, after the Finance Bill was announced there were changes in withholding tax rates for royalties for non-residents, increase in STT rates, changes in the cost computation mechanism for unit cost holders of business trusts, bringing debt-mutual funds in the ambit of STCG, several IFSC related amendments, etc.
While not much was expected in this interim budget, the government presenting the full budget later in 2024 will have a tall order.
(i)Tax certainty is high on the wish list for multinationals. The reluctance to rationalise safe harbours coupled with the unrelenting thrust on transfer pricing audits, disputes taking inordinately long to resolve, the BAR yet to deliver, APAs taking 5 year plus, MAPs being akin to entering a black hole with very little transparency around what happens in the G2G negotiations, are all issues that that need to be tackled with a sense of urgency, apart from more guidance and clarity on equalization levy law and tricky issues such as SEPs and treaty entitlement.
(ii)Domestic companies are seeking a reduction on compliance burden and amendment in a host of other provisions in the tax law including simplification of the capital gains tax regime.
(iii)Individuals are seeking greater tax relief and exemptions given the real inflation experienced.
Fostering tax certainty and reduction in compliance will go a long way in earning the taxpayers’ trust, and thus in line with the government’s development philosophy of “Sabka Saath, Sabka Vikas, and Sabka Vishwas (everyone’s trust)”. With attracting foreign investment being one of the five core strategy pillars for India’s Amritkaal growth vision, tax certainty for businesses should be high on the agenda in Finance Bill 2.