Govt should rationalise income tax rates, raise exemption limits
Budget 2017 is going to be unique in several ways. First, it would presented earlier than before, on February 1—a month in advance than it has been so far. Second, the Railway Budget would be incorporated into the General Budget. Third, the distinction between Plan and non-Plan outlays would be done away with and will be replaced by capital and revenue expenditure. Fourth, it comes before the likely implementation of biggest tax reform for India, i.e., GST, from July 2017, and most important, it is the first budget after the massive move of de-legalising high-value notes undertaken by the government. Additionally, the FRBM panel chaired by NK Singh has recently presented its report on the fiscal consolidation roadmap, and some of its recommendations are likely to be incorporated.
At a broader level, this year’s budget is expected to deliver a fiscal stimulus to boost consumption, investment and growth, and simultaneously incorporate measures to enhance government revenue through widening of the tax base.
The move of de-legalising high-value currency notes and the consequent disruption has acted as a catalyst in bringing about a transformation from a cash-heavy to a cash-light economy. However, for an economy where an overwhelmingly large proportion of transactions are cash-based, this shift necessitates a massive drive to familiarise/educate people with digital payment modes. The support of the banks should be sought to promote digital payment, and they should be encouraged to lead this effort just like they did in the case of Jan-Dhan accounts.
Additional benefits are expected to be provided to encourage more payments through the digital mediums by the government in the Budget. Connectivity is the key factor for successful implementation of the digital initiative and creation of a countrywide digital architecture wide and deep enough needs to be taken up on a war footing. An important step towards this would be speeding up the laying of the National Optic Fibre Network (NOFN).
As we march towards a corruption-free India, more policy actions are required to discourage tax evasion and generation of black money. Measures need to be taken to widen the tax net, ensure greater compliance and ensure effective administration. Sectors that are currently outside the scope of the tax net despite higher levels of income should be taxed; lowering tax rates, both corporate and individual, can improve tax compliance. In the same context, stamp duty rates for land and real estate transactions need to be lowered. Additionally, there is a need to make data analytics of tax administration more robust.
The initial steps to curb the parallel economy have been taken. However, for the movement from a parallel economy towards formal economy to gather momentum, incentives need to be provided for firms. Unorganised small set-ups can be encouraged to make this shift by offering them the ease of registration, minimal regulatory and procedural compliance, easy exit combined with lower taxes and subsidies/incentives such as social security benefits, skill development opportunities, access to finance at lower rates, and preferential treatment in government procurement.
We also look forward to the implementation of the GST in the coming fiscal at the earliest. A smooth roll out of the GST would depend on the preparedness of the industry (especially MSMEs), tax payers and tax authorities; we hope that measures are undertaken to ensure the same. These steps/measures could include advocacy workshops, setting up of grievance cells and expert committees on legal and operational issues, and easy compliance procedures to facilitate ease of doing business, amongst others.
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Tax reforms (legislative as well as administrative) that have been introduced over the past few years need to be continued with. Tax aggression should be done away with and appropriate safeguards need to be put up to protect the taxpayers from abuse of powers by investigating tax authorities. The performance of tax officers should not be based on targets; rather, it should be based on the traits of competence, judiciousness and fair play in their assessment orders.
One of the key priorities of the government is to revive consumption. The Budget should provide various measures for the same. The government, in coordination with the banks, should lower lending rates and provide easy financing to sectors like affordable housing. The budget should consider rationalising personal income tax rates, raising basic tax exemption limits and widening the tax slabs.
We also expect the public thrust on infrastructure to continue as the government looks to push growth and create jobs. The government could consider launching funds similar to the National Investment and Infrastructure Fund (NIIF) with other countries as co-investors. Such funds could be managed by professional fund managers and leveraged multiple times by providing equity for large projects across sectors. The government could also encourage states to sign ‘Support Agreements’ for large projects to aid timely implementation of such projects.
The country needs to focus on providing an impetus to the innovation culture in the country, as improved productivity through innovation can aid in attaining faster growth. Focus on innovation can generate/open up new opportunities across industries, process and business models which will aid India in its path of overall growth. India must have a comprehensive program on the lines on ‘Make in India’ initiative to be able to contribute to the global innovation economy