The much awaited Union Budget for 2017-18 turned out to be less exciting than what many thought it would be. As expected the budget proposals left any major changes in indirect tax to be decided at a later date when GST will be introduced and made some cosmetic changes in direct tax rates. The overall focus continued to be ease of doing business with increase GDP growth rate. The two headline grabbing steps announced in the budget are: (a) Reform of electoral funding of political parties and (b)Disbanding of FIPB, the body clearing foreign investment proposals, with the later impacting potential foreign investors.
The budget was placed in the back drop of sudden cancellation of two high value currency notes in November last year and the resultant adverse impact on GDP growth rate in the short term. However the remonetisation of currency that were withdrawn from circulation has now nearly complete. The adverse effect, according to the budget, will not affect the economy in the financial year 2017-18. In addition, the agreement reached on the contentious issues over introduction of GST will help the economy during the year.
Action on corrupt
Taking off from the demonetisation move the budget accepted the premise that the present tax burden is unfair on the honest tax payers and salaried employees. In order to crack down against the dishonest and the corrupt, the Budget proposed that if an accountant or a merchant banker or a registered valuer, furnishes incorrect information in a report or certificate, he shall be liable to a penalty of Rs 10000 for each such default. The budget also proposed to provide for grant of interest in case of refund of excess payment of TDS. At the same time, to ensure timely filing of returns of income, a fee will be levied in case of delay in filing the return.
The Government is trying to bring within the tax-net more people who are evading taxes. In this direction, the budget has reduced the Income Tax rate from 10 to 5 per cent for small taxpayers. But it has imposed a 10% surcharge on taxable income of Rs 5 million.
Another proposal is that no person shall receive payment or aggregate of payments of an amount of Rs 3 lakh or more from a person in a day, or in respect of a single transaction, or in respect of transactions relating to one event or occasion except by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. This restriction shall not apply to Government, banks or certain other categories as notified by the Central Government. Contravention of this provision will invite penalty.
Pointing out that there is an urgent need to protect the poor and gullible investors from dubious deposit schemes, operated by unscrupulous entities, the Finance Minister said that a draft bill to curtail the menace of illicit deposit schemes has been placed in the public domain and will be introduced in parliament shortly after its finalisation. This Act will be amended in consultation with various stakeholders, as part of our ‘Clean India’ agenda, he added.
Ease of doing business
The Foreign Investment Promotion Board (FIPB) will be phased-out in the next fiscal. Stating that the Government has already undertaken substantive reforms in FDI policy in the last two years and more than 90% of the total FDI inflows are now through the automatic route, FM said that the FIPB has successfully implemented e-filing and online processing of FDI applications and now reached a stage where FIPB can be phased out. Therefore, FIPB will be abolished in 2017-18.
Several measures were proposed in order to carry on the Government focus on easing business conditions in the country. The threshold limit for audit of business entities that opt for presumptive income scheme has been raised from Rs. 1 crore to Rs. 2 crore. Similarly, the threshold for the maintenance of books for individuals and HUF is now increased from turnover of Rs. 10 lakhs to Rs. 25 lakhs or income from Rs. 1.2 lakhs to Rs. 2.5 lakhs.
Foreign Portfolio Investor (FPI) Category I & II will be exempt from indirect transfer provision under the IT Act. Besides, indirect transfer provision shall not apply in case of redemption of shares or interests outside India as a result of or arising out of redemption or sale of investment in India which is chargeable to tax in India. This will remove apprehensions over taxation upon transfer of stake of investors of India-based funds located abroad but investing in India-based companies.
Individual insurance agents will be exempted from the TDS provision of 5% being deducted from commission payable after filing a self-declaration that their income is below taxable limit. Professionals with receipt up to Rs. 50 lakhs p.a. can pay advance tax towards presumptive taxation in one instalment instead of four.
In order to allow the people to claim the refund expeditiously, the Finance Minister said that the time period for revising a tax return is being reduced to 12 months from completion of financial year, at par with the time period for filing of return. Also the time for completion of scrutiny assessments is being compressed further from 21 months to 18 months for Assessment Year 2018-19 and further to 12 months for Assessment Year 2019-20 and thereafter, he added.
The Finance Minister proposed to restrict the scope of domestic transfer pricing only if one of the entities involved in related party transaction enjoys specified profit-linked deduction. This will reduce the compliance burden for domestic companies since the number of entities being covered under domestic pricing had gone up substantially resulting in longer scrutiny.
In effort to improve the ease of doing business, the Finance Minister said the process of registration of financial market intermediaries like mutual funds, brokers, portfolio managers, etc. will be made fully online by SEBI. Steps will be taken for linking of individual demat accounts with Aadhar.
For fostering a conducive labour environment wherein labour rights are protected and harmonious labour relations lead to higher productivity the Government will undertake legislative reforms to simplify, rationalize and amalgamate the existing labour laws into 4 Codes on (i) wages; (ii) industrial relations; (iii) social security and welfare; and (iv) safety and working conditions.
Model Shops and Establishment Bill 2016 has been circulated to all States for consideration and adoption. This would open-up additional avenues for employment of women. The amendment made to the Payment of Wages Act, is another initiative of our Government for the benefit of the labour and ease of doing business.
Financial sector and disinvestment
Easing the stressed legacy accounts of banks, the budget earmarked Rs. 10,000 crores for recapitalisation of Banks in 2017-18. The Government assured that need based additional allocation would also be considered emphasising focus on resolution of stressed legacy accounts.
The Government will put in place a revised mechanism and procedure to ensure time bound listing of identified CPSEs on stock exchanges. This will foster greater public accountability and unlock the true value of these companies.
CPSEs will be integrated across the value chain of an industry through consolidation, mergers and acquisitions. By these methods it will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders. Our principal Deepak Talwar hailed this decision, “This is a much delayed and much needed step.” The Finance Minister indicated that there were possibilities of such restructuring in the oil and gas sector. The Government proposes to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.
The Finance Minister said that the Exchange Trade Fund (ETF), comprising shares of ten CPSEs, has received overwhelming response in the recent Further Fund Offering (FFO). The Government will continue to use ETF as a vehicle for further disinvestment of shares. Accordingly, a new ETF with diversified CPSE stocks and other Government holdings will be launched in 2017-18.
The budget announced that the shares of Railway Public Sector Enterprises (PSEs) like IRCTC, IRFC and IRCON would be listed in stock exchanges.
Dealing with the markets, high net worth NBFCs can also now participate in IPOs just like the banks and insurance companies. Systemically important NBFCs regulated by RBI and above a certain net worth would be categorised as Qualified Institutional Buyers (QIBs) by SEBI at par with the banks and insurance companies, making them eligible for participation in IPOs with specifically earmarked allocations. This will strengthen the IPO market and channelize more investments.
In the first combined Budget of Independent India, that includes Railways, the Government pegged total Capital And Development Expenditure of Railways at Rs. 1,31,000 crores.
The Railways will focus on four major areas, passenger safety, capital and development works, cleanliness and finance and accounting reforms.
For passenger safety, a ‘Rashtriya Rail Sanraksha Kosh’ will be created with a corpus of Rs.1 lakh crores over a period of 5 years, to be funded by seed capital from the Government, Railways’ own revenues and other sources. Expert international assistance will be harnessed to improve safety preparedness and maintenance practices.
Talking about the proposed steps for modernization and upgradation of identified corridors, the FM said that Railway lines of 3,500 kms would be commissioned in 2017-18. and steps would be taken to launch dedicated trains for tourism and pilgrimage. In the next 3 years, the throughput is proposed to be enhanced by 10%. Further, the Minister added that Railways have set-up joint ventures with 9 State Governments and 70 projects have been identified for construction and development.
At least 25 stations are expected to be awarded during 2017-18 for redevelopment and 500 stations will be made differently abled friendly by providing lifts and escalators. It is also proposed to feed about 7,000 stations with solar power in the medium term, of which, a beginning has already been made in 300 stations. Works will be taken-up for 2,000 railway stations as part of 1000 MW solar mission.
By 2019, all coaches of Indian Railways will be fitted with bio toilets. Pilot plants for environment friendly disposal of solid waste and conversion of biodegradable waste to energy are being set-up at New Delhi and Jaipur Railway Stations and five more such Solid waste management plants are now being taken-up.
Some other steps to be introduced include:
- End to end integrated transport solutions for select commodities through partnership with logistics players, who would provide both front and back end connectivity. Rolling stocks and practices will be customized to transport perishable goods, especially agricultural products.
- Competitive ticket booking facility to the public at large. Service charge on e-tickets booked through IRCTC has been withdrawn.
- As part of accounting reforms, accrual based financial statements will be rolled-out by March 2019. The aim is to improve the Operating Ratio of the Railways. Tariffs of Railways would be fixed, taking into consideration costs, quality of service, social obligations and competition from other forms of transport.
- A new Metro Rail Policy will be announced with focus on innovative models of implementation and financing, as well as standardization and indigenization of hardware and software. This will open-up new job opportunities for our youth. A new Metro Rail Act will be enacted by rationalizing the existing laws. This will facilitate greater private participation and investment in construction and operation.
Our Principal Deepak Talwar stated that “Overall the budget had a positive impact on the capital markets and seemed to lend credence to the Government’s fiscal objectives, as well as its desire to keep GDP growth rate highest among the large global economies.”