What India needs from Budget 2020 to get back on the growth path

Image: Shutterstock

‘Budget 2020’ has perhaps triggered one of the highest level of expectations, given the proactive approach of the government to usher in reforms, as seen in the last few months.

So what does India need from this Budget? After having witnessed big bang announcements on corporate taxes, the programmes to promote local artisan and handicraft industry and the silver lining in terms of incentives for the automotive Industry, it is time to focus on some other segments of the ecosystem.

Agriculture One of the main areas of focus of Budget 2020 should be to enable farmers to double their incomes. This could be attained by incentivising usage of modern means to improve productivity. Innovative ways of using water and power, soil irrigation techniques and online platforms to execute sales of farm produce could be incentivised too. We need to focus on a seamless journey of best quality output from farm to fork; expectations are that the Budget will provide schemes of financial help to farmers, insurance and finance for other personal use.

Logistics
Another area to concentrate would be to encourage development of support sectors such as logistics, cold chains, transportation and warehousing, which are essentially the pillars of mainstream agriculture economy. A strong push for these sectors would be welcome.

Ease of doing business
While the government has announced measures to simplify regulations, taxes and compliance, it needs to ensure further ease of doing business in India. One of the ways of doing this would be to shift much of the burden from regulators to a self-assessment system which could be certified by the taxpayer. Reduction in cases for tax scrutiny could signify increased level of support by the government.

Promoting schemes such as ‘in-bond manufacturing’ are great ways to foster the ‘Make in India’ agenda of the government.

REITs
One of the avenues to attract investments in infrastructure is using REIT/InviTs. The government has been promoting the use of InviTs by making suitable changes to tax regulations. While a number of the issues have been resolved, there are few finer aspects that merit consideration. Currently, the holding period for a unit of the REIT / InvIT to qualify as long term capital asset, is more than 36 months, as compared to 12 months for similar asset classes. A reduction of this period of holding to 12 months to qualify as long term, should be considered.

Further, Dividend Distribution Tax (DDT) at the special purpose vehicle (SPV) levels on upstreaming dividend to a holding company, promotes usage of REITs/InviTs. Such exemption from DDT should be available to SPV structures, which are held through the holding company, as this will enable higher returns to investors, thereby making REIT / InvIT an attractive investment vehicle.

Tax structures
Companies tend to internally restructure to simplify legal stuctures, which helps reduce compliance costs. One of the major impediments for companies undertaking such rationalisation is non-availability of carry forward of tax losses in certain cases. The existing restriction of carry forward of tax losses should be done away with in cases of intra group reorganisations, where the ultimate holding company of the assessee (i.e. private limited company) remains the same.

Rationalisation of personal taxes appears to be a natural ask after the corporate tax reduction. Whether this would come in the form of reduction in taxation of dividend income in the hands of high net worth individuals, reduction of dividend distribution tax or a flat reduction of tax rates or rationalisation of slabs, is anyone’s guess.

Digital first
Last but not the least, increased use of digital is on top of the agenda for the government. It would really help if the government approves a platform for companies to provide incentives to those users who transact using digital means, whether it is operating a bank account, liaising with all government agencies, meeting all compliances and filings with authorities, filing insurance claims, heath records and other public utility services. This could, of course, be done in a calibrated manner.

Some of the areas of focus listed below could lead to improvement in the overall economic scenario and sustain the optimism in the air following the reforms in corporate tax.

Anil Talreja and Amrish Shah are Partners with Deloitte India.

The thoughts and opinions shared here are of the author.