Transforming India: Socialism for the Poor
Allocations for agriculture, social sector, rural welfare & infrastructure are commendable. The continuing challenge remains that of effective implementation
An oft-repeated moan in India has been that, quite perversely, economic policies tend to promote socialism for the rich and capitalism for the poor. Budget 2016-17 clearly attempts to achieve socialist objectives for the poor at the cost of the `well off'. In this respect, the ethos of the Prime Minister and the Economic Survey is visible all over the FM's Budget. Undoubtedly, the massive allocations for agriculture and rural welfare, social sector, including healthcare, education and skills development, and infrastructure are all very commendable. The continuing challenge remains that of effective implementation of these laudable objectives.As regards taxation proposals, there are some welcome initiatives on dispute resolution as well as procedural irritants, as pointed out in the Easwar committee on tax simplification.
To begin with, the one-time compliance window for domestic taxpayers to declare undisclosed income by paying 45% thereof -if the design is simple enough and gives assurances against future investigation -may receive a good response, unlike the offshore undisclosed income amnesty, which proved to be a damp squib. Similarly, the new dispute resolution scheme for past cases is welcome, except that the requirement to pay 25% of the minimum of the imposed penalty on such disputed tax in excess of `10 lakh can be a dampener. While the FM has fallen short of scrapping the levy of retrospective tax on indirect transfers altogether, there is a one-time scheme for ongoing cases where payment of tax will ensure closure of such cases without any levies of interest and penalty. There is also a welcome provision for compulsory grant of stay of demand by the assessing officer once the taxpayer pays 15% of the disputed income which is pending an appeal at the appellate authorities. Lastly, the much overdue revamp of the penalty provisions by making them graded in the range of 50-200% is a welcome step. When it comes to personal tax proposals, as expected, the threshold exemption limits as well as the slab rates remain unchanged, except that the FM has donned his hat to his predecessor by actually increasing the surcharge from 12% to 15% on the super rich earning income of over `1 crore. In addition, there is now a levy of 10% tax on dividends received by individuals in excess of `10 lakh per annum. As regards corporate tax reforms, it seems to be a mixed bag.
While there is clarity on the roadmap to removal of exemptions, with a sufficient long gestation of 2020 being provided for SEZ units, the proposal to reduce corporate tax rate to 25% (in lieu of not availing exemptions) to be applicable only to manufacturing companies may fall short of industry's expectation. There is an interesting provision for a lower, 10% rate of tax on income from worldwide exemptions of patents developed and registered by a resident in India and if designed and implemented properly, will be a huge incentive for IPR development in India. The new `equalising levy' of 6% of revenue raised by nonresidents for ecommerce services seems to be in line with the so called `Google tax' introduced by some overseas tax jurisdictions and, along with the requirement for country-by-country reporting, signals the government's resolve to be aligned with the Base Erosion and Profit Shifting provision on cross-border transactions.
All in all, if one considers the signals given by the government in the corporate tax reforms proposals earlier in the year, the recommendations of the Easwar committee and finally, the tax policy discussion in the Economic Survey, there are no major surprises in this Budget and it is on a firm footing for a move towards a more transparent and fairer tax regime.
To begin with, the one-time compliance window for domestic taxpayers to declare undisclosed income by paying 45% thereof -if the design is simple enough and gives assurances against future investigation -may receive a good response, unlike the offshore undisclosed income amnesty, which proved to be a damp squib. Similarly, the new dispute resolution scheme for past cases is welcome, except that the requirement to pay 25% of the minimum of the imposed penalty on such disputed tax in excess of `10 lakh can be a dampener. While the FM has fallen short of scrapping the levy of retrospective tax on indirect transfers altogether, there is a one-time scheme for ongoing cases where payment of tax will ensure closure of such cases without any levies of interest and penalty. There is also a welcome provision for compulsory grant of stay of demand by the assessing officer once the taxpayer pays 15% of the disputed income which is pending an appeal at the appellate authorities. Lastly, the much overdue revamp of the penalty provisions by making them graded in the range of 50-200% is a welcome step. When it comes to personal tax proposals, as expected, the threshold exemption limits as well as the slab rates remain unchanged, except that the FM has donned his hat to his predecessor by actually increasing the surcharge from 12% to 15% on the super rich earning income of over `1 crore. In addition, there is now a levy of 10% tax on dividends received by individuals in excess of `10 lakh per annum. As regards corporate tax reforms, it seems to be a mixed bag.
While there is clarity on the roadmap to removal of exemptions, with a sufficient long gestation of 2020 being provided for SEZ units, the proposal to reduce corporate tax rate to 25% (in lieu of not availing exemptions) to be applicable only to manufacturing companies may fall short of industry's expectation. There is an interesting provision for a lower, 10% rate of tax on income from worldwide exemptions of patents developed and registered by a resident in India and if designed and implemented properly, will be a huge incentive for IPR development in India. The new `equalising levy' of 6% of revenue raised by nonresidents for ecommerce services seems to be in line with the so called `Google tax' introduced by some overseas tax jurisdictions and, along with the requirement for country-by-country reporting, signals the government's resolve to be aligned with the Base Erosion and Profit Shifting provision on cross-border transactions.
All in all, if one considers the signals given by the government in the corporate tax reforms proposals earlier in the year, the recommendations of the Easwar committee and finally, the tax policy discussion in the Economic Survey, there are no major surprises in this Budget and it is on a firm footing for a move towards a more transparent and fairer tax regime.
Source: Economic Times, 1-03-2016
