PTIUnion Finance Minister Arun Jaitley. File photo
On the corporate tax front, rationalisation of the corporate tax rate is of top priority.
The first full year budget of this government is awaited with bated breath. Expectations are higher than normal more so since there are reports that big-bang announcement are in the offing.
The common man or the middle class segment of the population wants the threshold limit to be increased from Rs.2.5 lakh to Rs.4 lakh. Ideally, the threshold limit increase should automatically be aligned with the inflation rate and adjusted accordingly. Household savings, as a percentage of the GDP, have seen a decline, and, hence, there is a crying need to increase limit under 80C from Rs.1.5 lakh to Rs.2.5 lakh.
On the corporate tax front, rationalisation of the corporate tax rate is of top priority. There must be a single rate of tax at 25 per cent, and no other add-ons such as surcharge, cess and the like. If one includes surcharge, cess and DDT, it results in an overall effective tax rate of 45 per cent on corporates.
The story of special economic zones (SEZs) is like a tragedy of sorts. Necessary fillip has to be provided by removal of minimum alternate tax (MAT) on SEZs and also giving a fresh lease of life through specific income-tax exemptions such as the erstwhile export oriented unit (EOU) benefits.
The ‘Make in India’ story is not complete without tax sops. During the period the EOU benefits came to an end, there had been a noticeable decrease in foreign investment in India. Therefore, to give necessary boost to investments in India, some of these incentive schemes need to be revived.
One should factor the revenue foregone via tax sops by comparing it with the employment creation, foreign exchange earnings, and overall increase in economic activity.
Hopefully, the government should set to rest the issue of general anti-avoidance rules (GAAR) by emphatically stating that it will not be introduced. Given that the success rate of the department at Income-Tax Appellate Tribunal and High Court is at a meagre 17 per cent to 19 per cent, creating more provisions wherein the department can dispute established tax law and procedures will be counter-productive. In fact, the urgent need is to take stock of existing matters on appeal and withdrawing appeals, which are infructuous or where the department seemingly has no case on merits. This will drastically reduce the cost of doing business in India.
Crystallising the framework for implementation of domestic advance rulings (which was introduced last year but yet to take off) and expediting the finalisation of advance pricing agreement applications will go a long way towards establishing investor confidence and fast-tracking dispute resolution. While introduction of such alternate dispute resolution mechanisms was lauded by the investor community at large, the exceedingly large time involved in the implementation of such schemes may become a dampener.
Setting to rest controversies surrounding MAT, both on the substantive law and computation mechanisms, is the need of the hour, as the same has kept lawyers busy and the corporate world in permanent confusion.
It is high time that MAT as a concept was abolished, since the government incentivising from the left hand and taking back from the right does not serve any economic rationale.
This budget is being introduced at the peak of the World Cup fever, and like all puritans who relish and believe in the longer version of the game, any budget should think long-term and provide for stability in proposals which historically has been advocated but rarely practised.
The author is Partner, Tax & Regulatory Services, EY. Views expressed are personal.
Source - the hindu