As the BJP Government gets ready to present its second full-fledged Budget in February 2016, it is a good occasion to ponder upon what may lie ahead on the tax policy front in the coming year.
- “Bold” measures
a. Goods and Services Tax (GST): With perhaps the boldest tax reform measure – the GST – in the doldrums during 2015, it will be the coup of coups if the Government manages to get the GST passed in the Rajya Sabha (RS) in early 2016. While earlier in 2015, the Finance Minister (FM) talked about a joint session of Parliament as a way out, on the eve of 2016, he has alluded to the diminishing numbers of the Congress Party in the RS in the next few months as the basis for his confidence in getting the legislation passed.Now that it is evident beyond doubt that even if the “trinity of Hindu Gods descend on Earth, the GST will not be passed” (in the words of a Congress Party leader), the Government’s ingenuity in getting on board the non-Congress opposition parties in the RS will be severely tested. So, let all the power and force of the trinity of Gods be with the FM to achieve the impossibly bold reform of GST introduction in India in 2016!.
b. Corporate tax reforms: The Ministry of Finance (MoF) has diligently followed up the FM’s announcement in the Budget 2015 to progressively reduce corporate tax rates and also weed out the plethora of exemptions and deductions. The MoF has already set the “cat among the pigeons” by identifying a cut-off date of April 2017 for all existing deductions and specifying no extension of those deductions where there already exists a sunset clause.
It is bound to be an extreme tightrope walk for the FM to abide by the fiscal deficit targets, and yet reduce tax rates, grandfather existing deductions prior to whatever cut-off date gets implemented for various deductions, and give the customary reliefs to middle-income taxpayers. Now the FM has to attempt to do all of this without any discernible broadening of the tax base. Will he be bold enough?
Perhaps the Government is all geared up to put its stamp of distinction and boldness in the 2016 Budget as it is unshackled of the compulsions of its lack of majority in the RS when it comes to passing Finance Bills.
2. “Beautiful” measures
While beauty lies in the eyes of the beholder, when it comes to hapless taxpayers, they always await to see beauty in the tax administration, which they have to deal with on the ground. To the Government’s credit, we have seen a very sincere attempt to engage with stakeholders and issue necessary clarifications on most issues brought to the Government’s attention. Yet, the taxpayer remains concerned when provisions of law or guidelines issued by the tax authorities are capable of multiple interpretations.This concern stems from the accumulated experience of the past several years when tax officers have consistently shown remarkable imagination and creativity in making adjustments to taxable incomes. Hence, to make the experience of dealing with the tax authorities truly beautiful, it would be nice to come across more and more instances where tax authorities take pragmatic positions in keeping with commercial realities rather than read and interpret the “letter of the law” and then leave it to the Courts to decide the final outcome thereof.
Having said this, it equally enjoins upon taxpayers to similarly keep in mind the spirit of legislation in planning their business affairs so as not to get embroiled in avoidable controversies at a later stage. Here, the most bold and beautiful measure the Government can demonstrate is to substantially adopt the recommendations of the Tax Administrative Reforms Committee (TARC), which was set up by the previous Congress Government. By doing this, the NDA Government will amply demonstrate that it is not averse to seeing beauty in a salutary initiative of the previous Government!
The very fact that as we end 2015, there are absolutely no more references to “tax terrorism” and “retrospective legislation” is by itself a commendable achievement by this Government.
Now, let us all await the bolder and more beautiful of some of the above measures from the Government’s armory. We wish Godspeed to the FM to bring about critical tax reforms in the coming year!