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The newly elected government presented its first union budget in the backdrop of huge expectations, given the thumping mandate given by the people of India.
The economic survey highlighted the challenges: Lower than 5 per cent GDP growth for two consecutive years; persistent uncertainty in global outlook, caused by the crisis in the euro-area; general slowdown in the economy impacting the demand for exports; domestic constraints such as low manufacturing base, delays in project approvals and persisting high inflation, particularly in food items had made the fiscal situation worse than it appeared.
Given these factors and considering that the new government had less than 45 days to present the budget, the Finance Minister recognising limited room for fiscal manoeuvrability, has chosen to present a ‘working budget', perhaps as an interim measure and as a prelude to concrete bold steps which India requires to take. He has however spoken of a lot of measures that he intends to take, for example on India's most awaited tax reform - the uniform GST, for which he hopes to approve a legislative scheme enabling its introduction this year. Similar promises made in his speech but currently not forming part of his tax proposals include setting up a high level committee to scrutinise all fresh tax cases arising from the retrospective amendments of 2012 in respect of indirect transfers, extending the facility of advance ruling to residents, strengthening the authority for advance rulings by constituting additional benches and promising changes in India's Transfer Pricing regulations to bring them in line with the leading practices.
Direct tax rates remained unchanged for all taxpayers with recalibration of tax slabs for Individuals to provide a higher threshold of exemption with corresponding increases in all slabs and higher amounts provided for eligible investments which give tax breaks. The DDT however goes up by about 3 per centage points due to change in the manner in which its computation will now have to be done. Encouragement is sought to be provided to real estate and infrastructure sector funds by clarifying the basis of taxation in the hands of the Trusts/Funds and investors; however provisions relating to charitable trusts have been tightened to curb abuse.
Investment allowance has been continued as an incentive for manufacturing companies to encourage investment in plant and machinery and also by pegging a lower qualifying threshold. FII get clarity on the characterisation of their income and the government has signalled its intention to tap overseas securities markets by keeping out transfers of such securities between non-residents out of the tax net.
On the indirect taxes front, besides the much awaited clarity on GST, there were high expectations which do not seem to have materialised. Some provisions appear retrograde and counterproductive to the promise of igniting growth or simplifying compliance requirements. Proposals like restricting the time limit to claim CENVAT credit, increasing interest rate up to 30 per cent, penalty for delayed payments in addition to interest and mandatory duty and penalty deposit to admit appeals are certainly not good tidings.
However there are a few bright sparks such as neutralising the impact of FIAT judgement and rationalisation of the customs duty rates on import of coal will indeed benefit the industry.
There is a lot of thrust which the government intends giving to the infrastructure sector through the Public Private Partnership route to channel funds for investment and FDI. Raising the ceiling limits from 26 per cent to 49 per cent in the insurance and defence manufacturing sectors and reducing the mandatory requirements of built up area and capital conditions in the development of smart cities are much awaited steps in the right direction. The budget speech covers vast swathes of the economy including agriculture, financial sector, health and family welfare, rural development education, SEZ, industry including MSME, and infrastructure in all its avatars, giving a prima facie impression of resources being spread too thinly.
The proof of the pudding will be in the action that the government actually takes in the days ahead to ensure that people's expectations and hopes of India regaining her high and more inclusive growth status are met with.