Budget is an economic exercise and must be seen from the larger macroeconomic perspective as well as adherence to fiscal discipline. Given the fiscal deficit of 6.5 per cent, there may be constraints on spending plans by the government. However, if the growth in gross tax revenue of 25-30 per cent is sustained, it could give some leverage on keeping the deficit under check.
Some of the key direct tax expectations would revolve around broader themes of rationalisation of taxes, promoting ‘Make in India’ and facilitating ‘Ease of Doing Business in India’.
To provide an impetus to the monetisation and disinvestment plan, the government may look at reviewing various capital market-related measures. Abolishment of buyback tax for listed companies and restoring taxation in hands of shareholders could mitigate cases of double taxation and boost investor sentiment.
It may be noted that the current capital gains tax regime is fairly complicated with different asset classes viz. equity, debt and immovable property, varying tax rates, etc. It is expected that government may look at rationalising tax rates, holding periods, etc.., which could ease investor concerns and plug tax leakages due to arbitrage opportunities.
In line with the government’s agenda of promoting Amrit Kaal and Aatmanirbhar Bharat, the concessional tax regime of 15 per cent could be extended by another year, that is, up to 2025. This will help companies plan better as it takes two to three years to make a plant fully operational and will also encourage new-age technology like semiconductors, chips and batteries.
Alternatively, granting investment-linked tax deductions to such new-age technology manufacturing basis capex will attract capex for this sector. Such concessions may lead to some revenue loss in the short term but are futuristic as they will help generate employment, generate exports, and garner revenues in the long term.
The concessional tax rate regime in respect of interest income earned by non-residents on debt provided to Indian companies has proved to be a viable avenue for fundraising. Extension in the time limit (current up to June 2023) would continue to facilitate expansion/investment plans of the industry.
Adoption of OECD proposals on Pillar 1 and Pillar 2: Guidance on the applicability of the equalisation levy for the digital economy/e-commerce sector vis-a-vis adoption of Pillar 1 will mitigate duplication of taxes.
Similarly, clarifications around the applicability of Significant Economic Presence (SEP) provisions to digital transactions only, the introduction of detailed profit attribution rules and guidance on the government’s point of view on OECD proposals especially relating to Pillar 2 would go a long way in providing clarity to Indian and global MNCs.
The government is likely to look at personal income tax provisions as well. While there may not be much tinkering with the tax slabs, some incentives/concessions, for example, an increase in investment limit under Section 80C, higher deduction on home loans, etc., could be considered given that the higher interest rates are pinching the middle class.
As mentioned above, if the capital gains tax rejig takes place, it will also benefit individual taxpayers. With the new concessional income tax regime not finding many takers, the government is also likely to review how it can be made more attractive.
All in all, there are high expectations from Budget 2023 to announce various measures to provide a much-needed boost to industry, foster employment generation and sustained infrastructure push creating the roadmap for continued economic growth.
Kanabar is Partner, and Kochar is Director, EY India. Views expressed are personal
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