Government open to making tweaks to Budget: Finance Minister

Our Bureau | Updated on February 14, 2020

Willing to do more beyond the Budget, says Sitharaman at NITI Aayog interaction

Finance Minister Nirmala Sitharaman on Friday said she is open to making tweaks to the Union Budget, and is even willing to take steps beyond it, as and when the need arises, based on feedback from economists and experts.

In an interactive session on ‘Budget & Beyond’, organised by the NITI Aayog, she said the immediate feedback has been motivating, as it has had a “positive impact” on the currency, bond and equity markets. “It is one Budget where the impact on the equity, currency and bond market has been positive. The currency market remains stable, the bond market has cooled off and the equity markets are positive,” she added. “If more has to be done beyond the Budget, we are willing to do that.”

Chief Economic Advisor Krishnamurthy Subramanian, Revenue Secretary Ajay Bhushan Pandey, Expenditure Secretary TV Somanathan, Disinvestment Secretary Tuhin Kanta Pandey and other officials were present at the interaction.

On REITs and InvITs

Sitharaman sought the views of economists and tax experts on the Budget. Among the key observations were those related to a proposal on dividend taxation, and how it would affect real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).

The Budget has proposed levying tax on dividends from REITs and InvITs at the hands of the units holders. This move could affect the demand for REITs and InvITs in the country, say experts.

Rajiv Memani, CEO, EY India, suggested that the Centre restore the status quo in this matter. He pointed out that REITs and InvITs have gathered momentum in India and as much as $30-40 billion dollars could come in over the next 12-18 months if the dividend taxation regime remained unchanged. “We request you to restore the status quo and this will help infrastructure development in a big way,” he said.

Memani further said that a few years ago, REITs and InvITs were brought under a separate tax regime in line with how they were taxed globally.

He also sought clarity on whether the recent announcement around sovereign wealth funds getting tax breaks for certain investments in the country would also cover pension funds. Allowing tax breaks for global pension funds would lead to India getting more long-term monies, he said.

Withholding tax

Kaku Nakhate, President and India Country Head, Bank of America, also brought up the dividend taxation issue. The government could consider the concept of withholding tax on dividends paid by REITs and InvITs, she said.

“The point is the yield curve could go up (because of a change in dividend taxation) and India should not have a higher yield curve for infrastructure assets. This is a big point from the rating perspective also,” she added.

Refinance mechanism

Finance Industry Development Council (FIDC) Co-Chairman Raman Aggarwal said there is a need to reduce over-dependence on banks by diversifying funding sources. “There is a need to create a refinance mechanism. Now that the NHB’s (National Housing Bank) regulatory function has been transferred to the RBI, its prime role is to refinance. It should now refinance non ND-SI (non-deposit taking, systemically important) NBFCs,” he said. He further said the window of bank lending to NBFCs for on-lending to priority sectors should be extended beyond March 31, 2020, and the cap should be increased to 10 per cent.

To achieve a $5-trillion economy, there will be a massive need for capex investment in assets, he said. “For this, there is a crying need to promote leasing of movable assets, as is the case across the world. This should be done by exempting the interest component of the financial lease from GST,” he added.

Published on February 14, 2020

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