What Corporate India Expected From Union Budget 2017

Jacob Lew, former director of the White House Office of Management and Budget said, “The budget is not just a collection of numbers but an expression of our values and aspirations.” In 2001, the Atal Behari Vajpayee government shifted the timing of the Budget from 5 p.m. to 11 a.m. It was traditionally read out in the evening so that the British could follow it in London. This year, the Budget was presented on 1 February as opposed to 28 February to enable more time to implement the provisions. Moreover, the Railway Budget, which was announced a day earlier to the Union Budget, was clubbed with the Union Budget. In the backdrop of demonetisation and its affects looming large, BW Businessworld asked corporate honchos a few days before the Budget about their expectations from this year’s Union Budget. We also conducted a roundtable in partnership with NewsX where India Inc discussed its Budget projections

Since this Budget will be launched in the shadow of demonetisation, it could be an important inflection point if the government decides to be brave. The GDP growth forecasts have been affected by this move. This, in turn, has led to high expectations of a Budget which will cut taxes, incentivise savings, raise more revenue, be anti-inflationary and push growth, all at the same time. By any yardstick, it is a tough job.

The MSME segment, which bore the brunt of demonetisation because of its dependence on cash transactions, will need to be favourably addressed in the Budget. Digital India can look forward to additional plans and allocations because it ties in well with the aim of moving India away from cash.

Moreover, there are expectations of moves to neutralise the pain of demonetisation by lowering income taxes or increasing tax slabs. However, this will have to be done in a revenue-neutral way: to the extent of the new revenue which will come in due to the extended tax net thanks to demonetisation and the data collected by the government.

The financial services industry could do with a removal of securities transaction tax and commodities transaction tax as it will promote growth. Also, there is this rumour that long term capital gains (LTCG) benefit will be changed to three years, a very bad idea. If it ain’t broke don’t fix it! Instead, the best thing this Budget can do is push the equity cult which will fund our growth over the next decade. There is a need to attract people to the equity market. It constitutes just 5 per cent of the average Indian family’s financial wealth, compared to more than 40 per cent in the US. To enable mass outreach, entry barriers have to drop or disappear. The success of the Jan Dhan Yojana can be built upon for value addition and wealth creation. Our citizens should have the ability to fund the country’s growth and profit from it.

By moving the Budget from the last day of February to the first day, and combining the Railway Budget with the Union Budget, PM Narendra Modi has shown his willingness to try fresh ideas. I expect a marginal increase of the income-tax exemption rate to Rs 3 lakh. I also expect the introduction of a new 5 per cent tax slab on incomes between Rs 3 lakh and Rs 5 lakh.

The zero per cent tax rate on LTCG on equities and equity mutual funds has meant zero taxation on the assets of the wealthy (or ‘capital’) while workers (or ‘labour’) continue to pay tax according to their tax slab. The inequality in tax rates will be reduced by raising the LTCG rate to, say, 10 per cent. Or, the Budget could introduce a rule, whereby anyone earning more than, say, Rs 25 lakh a year of LTCG on listed equities would have to start paying tax on the same, instead of the current zero per cent tax rate on these earnings.

The holding period for equities and equity mutual funds to be called ‘long term’ could increase to three years. For companies, the Budget is likely to speed up the process of moving to a corporate tax rate of 25 per cent. But this could be coupled with a removal of a bunch of exemptions and deductions available to companies, which would make the tax code simpler to implement.

We are hopeful that the Finance Minister addresses certain key issues such as easing tax reporting and Income Tax slabs as well as the IT SEZ Policy and clarity on the much debated GST. Implementation of other policies like RERA or the Real Estate (Regulation and Development) Act, land acquisition policy and Benami Transactions Bill will infuse transparency and bring the much-needed credibility to the sector. Buyer sentiments are improving (post demonetisation) as the banks are passing on the benefits to the customers by reducing the interest rates on loans. REITs (real estate investment trust) too need to kick off, and the reduction in the cost of finance for both developers and buyers will make housing more affordable. All such reforms will give the realty sector the desired push.

At present, under section 36(1)(ib) of the Income Tax Act, the premium paid by an employer towards the health insurance of employees can be considered as a business expense and is allowed as a deduction. However, MSMEs and other corporates could be offered an additional incentive in the form of an income tax break that is equivalent to the amount spent on insuring employees, especially those with a basic salary that falls below a certain marginal level (but above Rs 15,000, that is, those qualifying for ESIC coverage). This will have the dual benefit of extending health insurance coverage to the marginalised and promoting MSMEs, which directly translates into sustainable economic growth.

A tax payer enjoys tax benefits by purchasing health insurance for self or dependents. But it beckons the question: What relief do the lowest income earners — those who do not fall into the income tax net — derive from purchasing health insurance? The ironic answer is that they pay a tax of 15 per cent (service tax) on the health insurance that they purchase. In all fairness and to promote the penetration of health insurance within those segments of society that need it the most, a tax holiday should be given on base level policies that have a certain minimal level of annual premium (approximately Rs 3,000 p.a./life) or coverage.

The local manufacturing of mobile handsets must be encouraged by the government with the right kind of incentives for the domestic players to counter the stiff competition from the global players as well as Chinese handset makers.

The Budget should provide definitive timeline on implementation of the GST. The implementation of the GST will benefit individuals as handset prices are likely to come down. Lower prices will lead to more consumption, thereby helping all mobile handset manufacturers.

Importers of full-fledged mobile handsets get unfair advantage in terms of low customs duties. We feel that the domestic mobile handset makers could be provided a level-playing field by way of a fair quantum of countervailing duty on imported handsets.

A time-bound concession in terms of duty waiver or incentives in terms of tax breaks to the domestic mobile handset components maker will go a long way in ensuring the Prime Minister’s dream of ‘Make in India’.

The government needs to implement a single window clearance for projects as the industry is not able to bridge the gap between demand and supply quick enough.

We expect the FM to roll out special incentives for first-time home buyers in the affordable housing category which will help in trimming the financial burden on home buyers and further enhance their buying power.

The realty market expects the government to give a massive push to infrastructure as it is one of the key elements to boost economic growth going forward. The RERA Act once implemented will boost the entire industry and will definitely prove to be a game changer for the market. This will bring transparency in the industry and will help curb many unfair trade practices bringing professionalism in the sector.

The government needs to bring in control and stabilise raw material prices as they have a direct impact on final price of the product. Introduction of GST will help in curbing multiple taxes which is a positive sign for the industry and result in buyers coming forward to buy property.

As an industry, we need to work towards promoting long-term savings habit and strengthen the persistency of our policies. The government in the Finance Act, 2012 mentions that all insurance policies, except pension plans, need to offer a cover of at least 10 times the annual premium to be eligible for tax benefits under Section 80C and Section 10 (10D). It is recommended that tax relief be linked to the term of the policy instead of sum assured.

Further the Section 10 (10D) provision can also be revised in line with the IRDAI recommendations. It can be based on the term and not the sum assured. It was suggested that only long-term policies should be allowed Section 10(10D) benefit.

I also expect a separate limit for Section 80C. Currently, Section 80C clubs investments in various saving instruments like mutual fund, PPF, pension products, etc., and also include other expenses like tuition fees, housing loan repayment.

In India, pension products are at a sharp disadvantage compared to NPS despite offering similar features. It is important to bring parity around deduction for pension policies from life insurance companies along the lines of NPS.

As far as indirect tax is concerned, on service tax on policies, I expect tax clarity and concessions from the Budget. This includes service tax levied on various components on services/various types of services offered including fund management charges, policy administration charges and mortality charges. We recommend revisiting service tax rate applicable on various insurance products. Especially on traditional and single premium products, which attract a high indirect tax making these products fairly expensive for the policyholders.