The FM has indicated that the government is considering ways to attract more NRI investment. The budget may announce an easier regime that puts NRI investment on a par with domestic investment. The government should also consider allowing direct listing of shares overseas rather than ADRs, both for listed and unlisted companies, just as is done in other economies.
Incentivising manufacturing and infrastructure is another priority agenda for the government. It is expected that to encourage special economic zones (SEZs), a reduction in the minimum alternate tax (MAT) on SEZs from the current 18.5 percent may be announced. Exemption from the dividend distribution tax on dividends distributed by SEZ developers/units will provide a further boost to them.
Real Estate Investment Trusts (REITs) are an excellent alternative source of investments needed by the real estate industry. In the last budget, the government had granted a pass-through status to REITs. However, the industry has been asking for a more favourable tax treatment to make them an attractive avenue for investment, ie, exemption to the sponsors of REITs from long-term capital gains tax and dividend distribution tax and exemption from MAT at the time of transfer of sponsor to trust. The anticipation is that with the focus on infrastructure development, the government may respond positively to the industry’s demands.
Several measures have been announced to improve the tax disputes resolution mechanisms. Constitution of high level committees to interact with trade and industry and bring clarity in taxation, expansion in the scope of the Authority for Advance Rulings, rollback in the scheme for Advance Pricing Agreements and reconstitution of Dispute Resolution Panels as a permanent, independent vertical in the department are all indicative of the government’s seriousness to minimise disputes. The government’s decision to not appeal against the Bombay High Court decision on the matter of taxation of income on share premium has also been received positively. These announcements now need to be translated into visible, time-bound actions. The recommendations of the Tax Administration Reform Commission (TARC) on the tax administrative overhaul must also be implemented.
To stimulate demand and put more disposable income in the hands of the common taxpayers, the government may consider a slight raise in the current income tax exemption limit.
Another significant reform eagerly awaited by the industry is the Goods and Services Tax (GST). The FM has reiterated the government’s commitment to introduce GST from April 2016 and is trying to seek support from the states for the passage of the Constitution (Amendment) Bill in this session. The industry would expect some announcements on the roadmap for GST implementation. One should also watch out for changes in the excise duty structure and service tax in preparation for the GST.
This budget is being seen as a big opportunity for the government to prove that, true to its election assurances, it will transform India. However, more than the big bang reforms, the small nuggets of changes will have to be watched out for. The government should keep pushing the ground level reforms to build a pro-investments and pro-growth India.
For more views, follow Rajiv Memani on Twitter @rajivmemani
Check out our 75th Independence year discounts on subscriptions, additional Rs.750/- off website prices. Use coupon code INDIA75 at checkout. Click here for details.
(This story appears in the 06 March, 2015 issue of Forbes India. To visit our Archives, click here.)