With India moving firmly on a growth trajectory, the finance minister Arun Jaitley presented the Union Budget 2016 on Monday in New Delhi. With a nine-point agenda in his budget speech, he stated that “India has been hailed as a bright spot amid slowing in the global economy by International Monetary Fund”. The Indian economy will grow at a rate of 7.6 per cent for 2015-16, compared with a year earlier, significantly higher than the estimated global economic growth rate of 3.1 per cent.
Some of the key steps include complete tax pass-through status to securitisation trusts, including asset reconstruction companies. Dividend distribution from special purpose vehicles to real estate investment trusts and infrastructure investment trusts having a specified shareholding has been exempted from the dividend distribution tax. This would help developers to raise funds. The finance minister has reassured that the government would not resort to retrospective taxation in future.
With a view to bridge the gap between uneven income groups, additional tax at the rate of 10 per cent of gross amount of a dividend is proposed to be levied on payouts of more than 1 million Indian rupees (Dh53,689) per annum. Further, the Securities Tax Transaction Tax levied on sales of an option in securities is proposed to be increased to 0.05 per cent from 0.017 per cent. This will make options transactions more expensive.
Further, rules for foreign direct investment are proposed to be liberalised across several sectors including insurance and pensions, asset reconstruction companies and stock exchanges. And 100 per cent foreign investments have been solicited in India in the marketing of food products produced and manufactured in India. It will be important to see what activities marketing will include.
Various measures have been adopted in the budget to support the policy initiatives of Make in India and Start-up India. Changes have been brought about in rates of excise duty and customs duty to improve the competitiveness of domestic industry. A complete deduction of profits for three out of five years has been proposed for start-ups set up during prescribed periods. Tax benefits on employment may significantly aid in creating employment opportunities and downsizing risk from muted global economy.
Reforms aimed at providing a simplified, stable and predictable tax regime would help to ease doing business in India. The finance minister has introduced administrative reforms to fast-track company incorporation process, reduce unwarranted litigation and strengthen dispute resolution measures.
A complete overhaul has been proposed in a penalty system with an objective of curtailing discretionary powers of the assessing officer.
Other major tax breakthroughs involve a reduction in corporate tax rate to 25 per cent for new manufacturing companies that do not claim profit-linked, investment-linked deductions and other prescribed deductions. It has also been proposed to do away with a higher tax burden on non-residents for non-furnishing Permanent Account Number in India, as long as other alternative documents are provided.
Given the uncertain global economic outlook, Mr Jaitley has made a laudable effort to address radical issues. Simplification of tax regulations, increasing rural demand for goods and services, attracting foreign investment, aiding Indian corporates in their expansion plan, laying ground for an export conducive environment have been the key drivers of the budget policy. Although various other reforms such as a sales tax are still in the pipeline and are crucial for growth, the current budget announcement has uplifted India’s growth momentum and has ushered in optimism.
Richard Rekhy is the chief executive of KPMG in India and a member of the global board of KPMG International. The views stated are personal.
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