New Delhi: From seeking lower individual taxes and continued public investment in infrastructure to incentives for women entrepreneurs and lower GST on consumer goods, India Inc has a long wishlist for the government as Finance Minister Nirmala Sitharaman prepares to announce the Union Budget 2023-24 on 1 February.
Several industry bodies like Confederation of Indian Industry (CII), Associated Chambers of Commerce and Industry of India (Assocham), Nasscom, in their recommendations to the government, have also sought decriminalisation of certain provisions in business laws to promote ease of doing business, reduction in excise duty on fuel, among other suggestions.
ThePrint briefly takes a look at the some of the key suggestions and expectations of the India Inc ahead of the Union Budget:
Personal income tax slabs
Rationalisation of income tax slabs and rates for individuals is among the top demands of the Indian industry, with a rationale that a lower effective tax rate will put more money in the pockets of consumers and increase consumption in the economy, which in turn will create room for investments and jobs, according to the CII.
“The Budget should address the sluggish recovery in demand at the lower end of the consumption strata by rationalising personal income tax slabs and rates at the lower end. This will boost disposable incomes and also provide targeted relief from inflation,” the industry body said in its submission to the finance ministry.
It added that the move would also reduce the differential between personal and corporate income tax and would be fair from an equity perspective.
Likewise, Assocham recommended that the tax rates for individuals may be reconsidered/reduced keeping in mind the reduced corporate tax rates and increased surcharge on individual taxpayers. “The Finance (No.2) Act, 2019 increased surcharge on individual taxpayers. With the increase in surcharge, the effective tax rates for individuals have gone up to 43 per cent (in certain cases),” it noted.
The industry body has also pitched for increasing the limit of deduction under Section 80C of the Income Tax Act from Rs 1,50,000 to Rs 3,00,000. “The current limit needs to be revised with passage of time. A higher limit will promote savings and building of capital.”
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Increased focus on capex outlay
Other measures highlighted by CII to improve consumption demand include increased focus on capital expenditure in labour-intensive sectors like construction, no further increase in excise duties on fuel and instead reduction be considered, expediting rural infrastructure projects and “at some stage” reduce the 28 per cent GST on goods like cars, two-wheelers, washing machines and ACs, among others.
The CII has also pitched for continuing the policy of enhanced public investment in infrastructure that has led to revival of growth. “This is important as the global economic environment continues to remain uncertain, impacting private investment sentiment, though that has also started to pick up.”
The budget could increase allocation towards capital spending to 3.3-3.4 per cent of GDP in FY24 from 2.9 per cent currently, with an aim to increase it further to 3.8-3.9 per cent by FY25 (3.9 per cent was a previous peak which was reached in FY04), the CII said in its submission.
The industry body stressed that there is a need to focus on promoting employment generating sectors like infrastructure, manufacturing, and tourism. “…the budget should also incentivise jobs like Artificial Intelligence (AI) and machine learning specialists, big data analytics, battery management systems engineer among others,” it said.
Business losses due to Covid
The industry has also pitched that unabsorbed business losses should be permitted to be carried forward for an infinite period, as against the current restriction of eight assessment years. “While this is recommended for all sectors, at the very minimum it should be per-mitted for (a) Start-ups and (b) New-age business e.g., e-commerce businesses.”
It pointed out that industry has faced severe challenges in the current environment due to Covid and a turnaround shall take at least 4-5 years. In addition, pre-pandemic, there was an evident slowdown in industrial activity.
“…any loss expired will result in payment of tax in the absence of any real and economic profit,” it said, adding that several countries such as Germany, France, the UK, Brazil, Australia, Russia, Singapore, and Norway, were permitting an unlimited timeframe to utilise business losses.
Noting that many companies have now adopted a hybrid working arrangement wherein employees are allowed to work from home, Assocham has sought that facilities and enablement provided to employees for work for home even though of personal nature e.g. refreshments, should not be considered as a taxable perquisite.
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Telecom, tourism & food-processing
Coming to some of the sector-specific want list, the telecom sector has sought rationalisation to regulatory levies. The Cellular Operators Association of India (COAI), the body representing all major private operators in the country, has said that the Universal Service Obligation (USO) contribution of 5 per cent of Adjusted Gross Revenue (AGR) may be suspended till the existing USO corpus is exhausted and License Fee be brought down from 3 per cent to 1 per cent at the earliest to cover only administrative costs by the DoT/Government.
“Telecom is one of the highly regulated sectors in the country. Given the huge burden of taxes and regulatory levies on telecom operators, and the critical nature of the service to drive Digital India, a special benefit may be provided to telecom operators by way of exemption of GST on regulatory payments of License Fee/Spectrum Usage Charge and spectrum assigned under auction,” COAI director general S.P. Kochhar said.
Kochhar added that telecos need to constantly upgrade infrastructure and are dependent on imports for equipment as the required facility to manufacture the equipment has not yet been set up in India. Highlighting the financial health of the industry amid the ongoing roll out of 5G services, the industry body also sought relaxation in import duties.
Ankit Jain, vice-president & sector head, Corporate Ratings at credit rating agency ICRA Limited, said the Indian telecom industry faced turbulent times, given the elevated debt levels amid low tariffs and the need for consistent capex.
This was exacerbated by the adjusted gross revenue (AGR) verdict, which added to the payment liabilities of the telcos. To bail the sector out of the stress, the government in September 2021, offered a package for the industry, which included a series of relief and reforms, including a 4-year moratorium on government-deferred dues.
“While the government has addressed several high impact issues and has also indicated another round of reforms to be announced, the industry seeks a reduction in the levies (mainly licence fee and spectrum usage charges) to ease the financial burden on the sector,” Jain said in a note on budget expectations.
Tourism industry services provided to foreign tourists on receipt of foreign exchange should be treated as “deemed export” and be exempt from GST without stopping the flow of input credits, Assocham said.
Assocham also pitched for a suitable framework to be developed and implemented for bringing liquor for human consumption under the ambit of GST. This, it said, will help in simplifying the tax structure for hotels and reduce illicit liquor and counterfeiting.
The CII added that with the travel and tourism sector opening up and India assuming the G20 Presidency, a Tourism Czar, or leader, who can work with concerned ministries, state governments and industry, should be appointed to step up tourism in the country. “The czar could work on tourism skill development, overseas branding campaigns, infrastructure development, and other issues to make India a global tourism hub. This would create a huge amount of employment in the services sector and help India reach top 5 in the World Travel and Tourism rankings,” it said.
Rajesh Magow, co-founder and group CEO of MakeMyTrip, reiterated a long standing industry demand for granting infrastructure status to the sector which will help in easier access to institutional credit. Magow also said that the differential regulations that give unfair advantage to foreign-based entities thereby impacting India-based companies should be reviewed.
Giving an example, he said, a direct tax provision mandates the collection of 5 per cent Tax Collected at Source (TCS) with PAN and 10 per cent TCS without PAN from the customer of an overseas travel package from any online e-commerce entity. This allows foreign-based OTAs (online travel agents) to offer lower costs to Indians because of the non-applicability of GST or direct taxes, he added.
The food processing sector, as per Assocham, has sought GST rationalisation on ready-to-eat mixes, condiments, frozen snacks, millet-based products and dairy-based value-added products to 5 per cent.
The CII has pitched for improving access to credit at reasonable rates for the industry by creating a dedicated venture capital fund for startups to stimulate greenfield investments and innovation. It further added that National Bank for Agriculture and Rural Development (NABARD) has created a Rs 200 crore fund to provide affordable credit for setting-up of new units or modernisation of existing food processing units in designated food parks.
The eligibility should be extended to all food processing units, including those located outside the designated food parks, it said.
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Relief for start-ups
The start-up sector has sought withdrawal of an amendment (to Section 68 of the IT Act introduced vide Finance Act 2022) that requires start-ups to explain the source of income of the investor investing in start-ups.
“It is important to note that in the pre-seed stage, start-ups generally borrow funds in the form of loans from friends/family of the founders. With this amendment, the start-up companies will be required to explain the source of income of the creditor. This compliance requirement may disincentivise friends/ family to lend money to the start-ups and dampen the fund-raising efforts,” Nasscom has said in its Budget recommendations.
Nasscom has also urged for a reduction in the minimum alternate tax (MAT) for eligible start-ups under Section 80-IAC of the IT Act from 15 per cent to 9 per cent, to provide a boost to the start-up ecosystem. It has added that there is a need to levy tax on long-term capital gain earned by resident investors on the sale of unlisted shares of DPIIT recognised start-ups at par with non-resident investors i.e., at 10 per cent.
Nasscom has further pitched for making the deferment of the time of payment of tax on Employee Stock Option Plan (ESOP) available to the employees of more start-ups.
In 2020, the government enabled deferment of the time for payment of tax on ESOP for those Department for Promotion of Industry and Internal Trade (DPIIT) recognised start-ups which hold an Inter-Ministerial Board (IMB) certificate. This was aimed at addressing the onerous situation where employees of a start-up became liable to pay a potentially huge tax on the shares received under an ESOP, without realising any profit.
Nasscom reasoned that today, less than 0.8 per cent of the 82,000 DPIIT recognised start-ups can avail of the deferment. “Given the importance of ESOPs in attracting and retaining talent in start-ups … As the employee is required to pay the full tax and there is only a deferment of the time of payment, the facility of deferment should be made available to all DPIIT recognised start-ups (i.e., it should not be limited to the 635 eligible start-ups who have obtained the IMB Certificate under 80-IAC of IT Act).”
(Edited by Anumeha Saxena)
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