Wish List for Budget 2018-19

By: Manoj Malpani

From day one of taking charge, the current union government has been breaking old old rules of governing the country. Not a single opportunity is missed for making policy changes or procedural changes. Even the Budget presentation date could not escape this trend. The Government has advanced the budget presentation day by nearly a month and it presented the Union Budget for the year 2017-18 on 1st Feb 2017.  This year also it is set to follow the precedence and it will present the Union Budget for the year 2018-19 on 1st Feb 2018.
One will be inclined to mention that this Budget will be presented keeping in mind that the general elections are around the corner. Politically speaking, the ruling party, BJP draws it power from the middle class and small businesses. At the same time, the BJP cannot ignore the rural population and farmers. It is no secret that this budget will focus on these segments in particular. The finance minister has given clear indication that the Government’s focus in the upcoming budget will be on rural India and development of infrastructure. However, the task at hand is not easy considering the indifferent pace of GDP growth and fiscal pressures. With the implementation of GST, the Union government has limited choices to increase revenues from Indirect Taxes. On the other hand, in Direct Taxation, the Government already had promised rationalisation of tax rates for corporate tax payers and, also they cannot afford to increase the personal taxation rates. Considering the limited choices in augmenting revenues from the tax proposals, the Government is expected to fast track the disinvestment of entities like Air India to fulfil its requirement of additional revenues to support the spend on infrastructure and rural India.
The Wish List from the Budget is never ending. However, below is my pick from a tax proposals point of view.

Direct Taxation

Tax rates for individual: The data released by the Government clearly shows that there is a huge jump in the number of tax payers as well as the direct tax collections post demonetisation. It will be too early to comment on whether we are on the right path of “moving from a largely tax non-compliant society to a largely tax compliant society”. In my opinion, a lower tax rate can be a catalyst in this process. As the tax rates goes down the compliances go up. In this background one can expect that there will be some relief, be it marginal or otherwise, on the tax rates or tax slabs for individual tax payers.

• Taxation of Salaried employees: The salaried employees are easy catch from a direct taxation point of view. In the organised sector, after introduction of TDS on salaries, there is no way by which salaried employees can escape taxation. Though this cannot be a reason for demanding the cut in the tax rates, there are other reasons which need to be considered. As on date there are no expenses allowed to Salaried class while arriving at the taxable income. Every penny earned is considered as income. On the other side, the businesses are allowed to claim expenditures for running the business and only profits are taxed under the income tax. This disparity can be removed by re-introduction of some kind of “Standard Deduction” to salaried employees. Further, for different slabs of salary a different standard deduction can be given. If this is brought in, there will be considerable relief to the salaried employees.  

Corporate Taxation: The Hon’ble FM has already promised to the corporate tax payers reduction in taxation to 25% over a period of time. The reduction in taxation to corporate is also linked to exemptions which corporates are allowed to take. I would be surprised if the corporate tax is reduced to 25% in this budget. I feel, the Government do not have the fiscal leeway to reduce the corporate taxation at this point of time. However, a clear road map for corporate taxation in the near future can be expected in this budget speech.      

• Income Tax Exemptions: The Hon’ble FM in his earlier budget speech has made it clear that he intends to withdraw all income tax exemptions. However, for developing economies like ours, we need to extend such benefits so as to encourage investments in priority sectors. Looking at the current scenario, it would be tough to remove income tax exemptions. In fact, there is a growing demand within the Government itself to increase the period of eligibility of certain income tax exemptions. One such exemption that needs to be extended is the exemption on export profits to Special Economic Zone Units (Section 10AA of the Income Tax Act, 1961). The current provision puts the restriction that the SEZ Units should start manufacturing by March 2020. There is a demand to either remove this condition or extend the period by at least 2 years which will boost the investments in SEZ across India.

• Deductions: One can expect increase in the deduction in limit under Section 80C which is currently at Rs 1.50 Lacs and other deductions like insurance premium on Mediclaim policies. Over a period of time, there is increase in the medical costs and premium as well. Necessary revisions should be done in these deductions.   

• Simplification of IT Return Formats: With the advent of the e-filing portal, over a period of time the filing of income tax returns has been made easier. The Government should further simplify the formats of income tax returns. Today’s income tax return form is linked to the nature of income. The current Income Tax return format do not differentiate between small taxpayer / large taxpayers. A one pager form / small return for small tax payers irrespective income under different heads can be  introduced so as reduce the hardship to the tax payers.

Reduction in % age of presumptive Income for service providers : The specified professionals has option to declare the income to the extent of 50% of the receipt from the professional services. 50% income is considered irrespective of actual expenditure incurred by such tax payers. If one has income of less than 50% then the books of accounts need to be audited and certified by a Chartered Accountant. There is need to reduce the limit of presumptive income from current 50% to 30-35%. No business can run with a profitability of 50%. The presumptive income of 30-35% will be more rational for the service providers.   

Indirect Taxation
With the introduction of GST, the indirect tax proposals will be limited in this budget. The GST council meetings and changes proposed in the GST council meetings are sort of mini-budgets which we all are witnessing every month. Though most of the goods and services are covered under the GST, some of the goods are kept outside the purview of GST like petroleum products, tobacco products etc. The budget proposal will include changes with respect to these goods. Apart from these, you can expect that the union budget will have a few changes in the customs duties and changes in governing laws.  Let us go though some of the major actions which we can expect in this budget.

• Petroleum Products: There are talks going around since last couple of months that the petroleum products which were kept out of GST will be brought into the GST regime very soon. The Central Government has already initiated the dialogue with the State Governments to decide the framework and timelines for inclusion of these products in GST. We can expect that the Hon’ble FM will give a roadmap and timelines for inclusion of these goods under GST in this budget.

Rationalisation of Custom Duty Rates: Rationalisation of custom duty rates is an annual and ongoing exercise. We can expect the northward direction in custom duty rates wherein Government can provide impetus to “Make in India”. Further, we can expect reduction in rates for some of the focused items like parts of electronic goods etc again to boost the domestic manufacturing.  

• GST Law Changes: The GST advisory group has submitted a report suggesting changes to be made in GST law. The law review committee is scrutinising the proposals submitted by the advisory group. One can expect that Hon’ble FM will share the future road map on GST more specifically on Compliances in GST, number of tax rates, exemptions etc. Only time will tell about the changes proposed GST law in this budget.

As mentioned earlier, the Wish List is never ending. Let us see how many of the aforesaid wishes reach to the Hon’ble FM so that it can be fulfilled. I wish every reader a happy union budget. I will signoff with the hope that this budget brings cheers in everyone’s life as well as to the Indian economy.

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