A vote on account is an Interim Budget that estimates the money the government needs before a new government takes over after the elections. Thus, we cannot expect major announcements in the Budget, coming shortly before the general elections. Even so, there are some changes that the government may consider, given the current global economic situation.

The Interim Budget needs to focus on tax certainty for businesses. This would impart confidence to businesses planning new investments for leveraging the current growth momentum. A few key steps would help rationalise and simplify taxes.

A significant incentive provided for the manufacturing sector as part of the Aatmanirbhar Bharat mission was the concessional tax rate of 15 per cent, subject to certain conditions. This was applicable to manufacturing companies set up from October 1, 2019, and commencing operations before March 31, 2023, and later extended to March 31, 2024. Given the unsettled conditions since this announcement, it is suggested that the sunset period be extended for at least another year to March 2025. Such a step would encourage manufacturing companies to take up capacity creation and, thereby, generate employment.

To address the high level of litigation, the government may announce steps to reduce the pendency of disputed cases. For further relief to taxpayers from persistent delays in refunds, TDS credit, etc., the government may examine the interface with the Central Processing Centre to make it more efficient and responsive.

Disparity in TDS rates

The government may consider laying down a roadmap for reducing the disparity in TDS rates by having only two or three categories of payments and a small “negative list” of payments which will not be liable to TDS. This will ease the compliance burden on the taxpayers, simplify the domestic TDS regime and avoid litigation on characterisation disputes.

Capital gains tax

At present, there is no consistency in capital gains tax rates or holding periods for different types of instruments falling within the same asset class. It is suggested that the government bring out a framework for greater simplicity, consistency and rationalisation of the capital gains tax regime.

Consequent to the reduction of corporate tax rates, the differential between personal and corporate tax has widened. The highest marginal rate for individuals has now gone up to 42.74 per cent (highest slab) against the normal corporate tax rate of 25.17 per cent. Currently, under the new tax regime, incomes above ₹15 lakh are being covered under the highest tax slab. To boost private consumption expenditure, it is suggested that this threshold be raised to at least ₹20 lakh. This will provide relief to middle-class taxpayers and increase their disposable incomes.

A key part of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project was aimed at addressing the challenges arising from the existing international tax system which is no longer fit for the globalised and digitalised economy. It is suggested to chalk out a clear roadmap on the changes required in the domestic tax legislation on applicability of the Global Anti-Base Erosion (GloBE) rules including date of applicability, safe harbour, exclusions, computation mechanism, etc.

On the customs front, the Budget proposals could focus on improving the quality of trade facilitation environment which would foster domestic manufacturing. Attention is needed towards making robust provisions for resolution of taxpayers’ grievances in a time-bound manner, where automated escalation mechanism is introduced.

One time tax dispute settlement scheme under customs is expected from the government so that industry, particularly MSMEs, may get rid of long pending litigations, save time and money, and focus on their businesses.

Government should strengthen the ‘ICEGATE’ portal and integrate it with concerned authorities such as SEZs, Directorate General of Foreign Trade , banks, the GST network and other participating government agencies to enable fast and seamless transition of data.

Sunset clause

The sunset clause fixed for certain exemptions needs to be extended for the products not being manufactured or available in the country, so as to ensure availability at lower prices for the manufacturers to render them globally competitive. The export incentive under the RoDTEP scheme can be enhanced commensurate to the actual taxes embedded in export products, and all products and schemes can be brought under its ambit.

The upcoming vote on account would impart a thrust on strengthening India’s growth momentum and we believe that these steps would contribute greatly towards achieving the same.

The writer is Director General, CII

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