The ongoing pandemic and the resultant lockdown(s) have caused massive disruption in businesses and sent shockwaves around the world. India is no exception. The government has taken laudable steps to support and propel the economy, but a lot still needs to be done. Against this backdrop, the finance minister, in the upcoming Budget, will try to further boost the economy towards its pre-pandemic growth level. Here are some points for consideration for Budget 2021.
Maintain status quo on income-tax rates
Keeping in view the fiscal deficit, increasing tax rates in some shape or form is likely to be on the cards. It is pertinent to note that almost every section of the society has borne the brunt of the pandemic, be it large corporates, MSMEs, small vendors or daily wage workers. Savings and livelihoods have taken a hit, and many families are struggling to keep financially afloat. Therefore, it is desirable that the government refrain from increasing the tax rates or imposing additional surcharge and cess.
Additionally, to garner resources, probably time has come for India to speed up its disinvestment process, the seeds of which have already been sown: several announcements to this effect were made by the government during the pandemic.
Promoting investment and consumption
To boost infrastructure development, a deduction may be allowed for individuals for investments in long-term infrastructure bonds/projects, say for Rs 1 lakh. Besides providing the necessary funds, this would give an impetus to inter-dependent sectors like cement, steel, logistics, etc, and create large-scale employment for unskilled and semi-skilled workers.
To boost consumption, a one-time tax deduction of Rs 50,000 to Rs 1 lakh could be proposed for all individual taxpayers for expenditure incurred on travel and stay in India, purchase of electronics, white goods and vehicles manufactured in India. This single step would provide the much-needed impetus to the ailing hospitality industry and give a boost to ‘make in India’.
Work from home/anywhere
One big, forced change due to the pandemic is a shift in the mindset of the Indian society in embracing the concept of “Work from Anywhere”. Even the government itself has experienced and practised it and found to be cost-effective. Faceless assessments and appeals are a living example of this change.
Consequentially, Special Economic Zones (SEZs), which are area-/rule-bound, need more flexibility. India has an edge in information technology (IT) and IT-enabled services (ITeS). Therefore, the rules relating to SEZ need relaxation to allow employers to decide on their workforce operating from offices or homes.
Similarly, the infrastructure provided by employers to employees like table, chairs, computer peripherals, etc, used primarily to carry out office duties, should be outside the perquisite/salary tax net.
Rationalisation of Tax Deduction at Source (TDS)/Tax Collection at Source (TCS) provisions
The ever-increasing coverage of TDS/TCS provisions, coupled with interpretational challenges, create administrative burden and lead to unnecessary disputes. Hence, there is a compelling need to revamp TDS/TCS provisions and reduce the different rates of tax. The stated intent of these provisions is to garner information and eventually widen the tax net. With the advent of technology and increasing digitisation, as all the information is easily available with the tax authorities, a token rate of 1 per cent or 2 per cent should suffice.
Further, there is a lot of unnecessary disputes on matching income and tax credits in different financial years. This could be remedied by introducing the concept of TDS/TCS passbook. Credits in the taxpayer’s passbook may be utilised by them anytime, in any year. This revenue-neutral measure would save time and effort of both taxpayers and tax authorities.
Startups, valuations and business re-orgnaisation
It would not be an exaggeration to say that no one fully understands the valuation or the real value of start-ups. One view is that it defies logic on how their valuation could go up from a few thousands to a few billions of dollars in just a couple of quarters. The counter argument to justify this, though philosophically, is that “beauty lies in the eyes of the beholder”. So, a suggestion would be to let this be decided by investors and the startups themselves. More so when no public money is involved. It is desirable to ease out the valuation norms for startups and not force them to create paperwork just to support the agreed values.
Similarly, the boundaries set for any organic or inorganic re-structuring entailing transfer or issue of shares or securities often act as impediments for business re-organsation. There is a need to re-evaluate these rules and make them transaction-supportive.
Frankly, there are no easy answers on how to tackle the current economic downturn, with limited ammunition available with the government to meet demands of diverse stakeholders. Nevertheless, “hope” for a better tomorrow is an ingredient that has kept humans alive and resilient. One hopes that Budget 2021 will be a bold and reformist one, that it will unleash animal spirits in the economy, and that it will become an important milestone in India’s journey to becoming a $5-trillion economy.
The author is National Managing Partner – Tax, Grant Thornton Bharat LLP. Views expressed are personal. They do not reflect the view/s of Business Standard.