In the backdrop of strong global headwinds, the finance minister has presented a budget which seeks to accelerate investments by providing a more stable and simple tax regime. On behalf of members of the Easwar committee, I would like to thank the government for accepting many of the recommendations, which will go a long way in rationalizing and simplifying taxation procedures.
Acknowledging that taxes contribute significantly to the fundamentals of a strong economy, the finance minister has announced tax reforms in nine categories across significant thrust areas, with an eye on boosting growth and employment generation, the rural economy, the business environment and providing certainty in taxation, use of technology for enhanced tax efficiency and also providing relief to small taxpayers.
In line with the government’s commitment to remove black money from the economy, a one-time compliance scheme is proposed to be introduced for a limited period that will provide an opportunity to domestic taxpayers to declare their undisclosed income by paying the tax with the interest and penalty amounting to 45% of the undisclosed income. This will save taxpayers from scrutiny and further action by the tax department.
In its previous budget, the government had proposed to reduce the corporate tax rate from 30% to 25% and had removed exemptions and deductions. Pursuant to its commitment, the government has proposed to define a sunset clause for various exemptions and deductions and has also announced relief for small enterprises by lowering the tax rate to 29%.
In a boost for small taxpayers, the government has announced a number of benefits ranging from enhanced deduction for interest on housing loan to first-time home buyers, increasing the limit for presumptive taxation scheme and rationalising the limits of tax deduction at source.
With the aim of simplifying and rationalizing lengthy procedures and speedy completion of litigation proceedings, many procedural amendments have been proposed in the litigation and compliance areas.
Contrary to the industry’s fears, the government has not increased the period of holding for transfer of shares of listed companies for the claiming of tax exemption. This is a welcome step, along with extending the benefit of long-term capital gains on shares of unlisted companies by reducing the holding period from three years to two years.
The government has also recognized the benefits of using technology and has planned to expand the scope of e-assessments to all taxpayers in seven mega cities over the next few years which will serve as a stepping stone to developing an investor-friendly and environment-friendly taxation regime.
On the indirect tax front, the finance minister has refrained from increasing the median rate of any indirect tax, apart from imposing the new Krishi Kalyan cess at 0.5% on the value of taxable services with effect from 1 June 2016. This would take the effective rate of service tax (including Swachh Bharat cess and Krishi Kalyan cess) to 15%.
As an impetus to the Make in India campaign, customs and excise duty rates have been restructured to incentivize domestic value addition across various sectors such as information technology hardware, defence, chemicals and petrochemicals.
In a welcome step, the finance minister has introduced amendments in existing laws that will significantly simplify and rationalise indirect taxation. For instance, the CENVAT (central value added tax) credit base has been widened and provisions have been streamlined. The interest rates have also been made uniform for all indirect taxes at the rate of 15%, except where service tax was collected but not deposited, in which case interest would be applicable at 24%.
A limited period opportunity has also been given to assessees to reduce indirect tax litigation by way of introduction of the Indirect Tax Dispute Resolution Scheme, 2016.
However, the country remains anxious on the uncertainty over the passage of the bill on the goods and services tax, or GST.
Overall, the above measures are targeted at creating an investor-friendly environment by providing certainty in taxation and a simplification and rationalization of procedures.
Rajiv Memani is chairman, India region, EY.
This article was originally published on Live mint.