Budget 2018 Needs And Expectations
The 2018 Budget needs to balance competing expenditure priorities and the clamour for lower direct and indirect tax rates, while attempting to maintain fiscal rectitude. While such challenges are not uncommon, this budget is being prepared amid the uncertainty posed by the prolonged transitional issues following the implementation of the Goods and Services Tax (GST), as well as rising crude oil prices.
Available data signals that government’s indirect tax revenues will undershoot last year’s budget estimates if one strips off the Integrated GST (IGST) collections that don’t entirely belong to the Centre. Although the GST Council will decide on any changes in GST rates, the tax growth assumed by the government would provide a hint whether further reductions in tax rates are forthcoming.
Takeaway from survey of
Budget 2018 Need Analysis of primaries.
The key takeaways from the Economic Survey 2017-18 released yesterday were not new facts but a reiteration of what are the most important policies and mechanisms that need to be looked at urgently by the Government of India. The three key issues that stood out were
(i) The infrastructure investment gap pegged to be at approximately 526 billion USD by 2040
(ii) Stressed corporate balance sheets with the 525 cases admitted under the Insolvency and Bankruptcy Code (IBC) having a total underlying default of INR 128, 810 crores and
(iii) The problems with land clearances to start greenfield i.e. new infrastructure projects.
The term ‘higher education’ has a narrow definition for section 80E purposes and is education-oriented and not employment-oriented “Higher education” means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognized by the Central Government or State Government or local authority or by any authority authorized by the Central Government or State Government or local authority to do so. . The scope of deduction under section 80E needs to be expanded from deduction in respect of interest on loan taken for higher education to also include interest on any loan taken to pay for any vocational course whether Government recognized or not that would enable the individual to take up a job or self-employment. This will make the whole fiscal incentive job-oriented also. This will also help reduce the mismatch between what the industry wants and the education or skill set that students acquire.
Government may introduce an incentive scheme whereby those who repay punctually would get certain number of installments towards the end of the loan tenure waived off in Union Budget. Alternatively, an interest subsidy may be credited to bank account of the taxpayer (assess) the day he repays the last installment. This will reduce the cost of education loans, reward honest borrowers and help reduce the NPAs on education loans.
The limit for section 80C deductions in section 80CCE is presently Rs.1, 50,000 which is woefully inadequate in today’s circumstances where cost of education has gone exponentially. This limit might be increased significantly.
Notably, Foundry industry is the mother of all industries, and India is among the largest manufacturer of metal castings globally, produces more than 10 million tons of castings in various metals such as grey iron, ductile iron, steel and aluminum alloys for various applications valued at approx. $18 billion, as per the report. However, because of the various problems faced by the industry, the growth in foundry sector over the last five years has remained stagnant. As a proposal for Budget 2018, the import of key raw materials should be made duty free so that the impact of the devaluation of INR is offset to some extent. In fact, some of the raw materials such as metal scrap were allowed to be imported duty-free. However, subsequently, import duties were imposed on them. The cost of equipment has gone up steeply over these seven years; as such the limits in investment in plant and machinery for classification of units in Micro, Small and Medium category has become obsolete, therefore need to be relooked. It may be suggested to revise the caps for cost of plant & machinery for the purpose of definition of MSME in manufacturing are given below for consideration
- Micro – Rs 25 L to Rs 50 L
- Small – Rs 5 Cr to Rs 10 Cr
- Medium – Rs 10 Cr to Rs 30 Cr
As the Budget 2018 is around the corner, some of the schemes with similar characteristics might be brought at par in terms of tax benefit and lock-ins. Tax benefits had been the driver for investments in India. The following could be worth considering –
- To delete the disparity of EET (exempt, exempt and tax) for NPS to make it more attractive (like RPF, PPF which is EEE) if the Govt. is intending to position NPS as the most sought after pension scheme over the RPF shown by allowing tax free transfer of corpus from RPF to NPS.
- This e investments in mutual funds or equity does not attract long term capital gain tax, so it would be unfair to tax NPS on maturity which may have 50% of equity. Imposing a minimum investment period of 3 years or 5 years to qualify for exemption may still be welcome.
The 2018 Budget needs to balance competing expenditure priorities and the clamor for lower direct and indirect tax rates, while attempting to maintain fiscal rectitude. While such challenges are not uncommon, this budget is being prepared amid the uncertainty posed by the prolonged transitional issues following the implementation of the Goods and Services Tax (GST), as well as rising crude oil prices.
Available data signals that government’s indirect tax revenues will undershoot last year’s budget estimates if one strips off the Integrated GST (IGST) collections that not entirely belong to the centre.