The past few years have been a mixed bag and the country is now looking toward to the new year with renewed optimism. Everyone is keen to know the direction that India will take on the 1st of February 2018. As a part of Corporate India, Henkel India hopes that some of the expectations we have will be addressed by the Union Finance Minister of India, Arun Jaitley. Overall, we expect Budget 2018 to consolidate gains from the various structural reforms (such as GST, demonetization, etc) implemented outside the Budget which have helped it formalize the economy. Tax policy is a key element of our nation’s economic reform agenda, and can be effectively leveraged to spur consumption, growth and investor sentiment. Accordingly, some of our expectations (related to direct and indirect taxes) from the Union Budget 2018-19 include:
Reduction of Corporate Tax rate to 25%, as committed by the Finance Minister in 2015 budget
Topping the budget wish list of India Inc is the request to reduce corporate tax by at least 5%. In his 2015 budget speech, Jaitley announced a reduction in corporate tax rates from 30% to 25% with corresponding withdrawal of exemptions over 4 next years, which is a welcome approach. Cutting down the corporate tax rates drastically will enable the government to create an environment which will facilitate smooth functioning and growth of businesses. In all probability such a move will help boost job creation and drive investments to the country.
Tax Benefits on Mandatory CSR Spending
The enactment of the Companies Act, 2013 has made India the forerunner to mandate 2% spend of a company’s three-year average net profit on Corporate Social Responsibility (CSR) activities. However, there is no tax benefit on this mandatory CSR spend. Corporate India has constantly recommended that the government should take into consideration provisions of Explanation 2 to sub-section (1) to Section 37. The provisions should be amended to allow CSR expenditure in computing taxable income. Necessary measures should be integrated to avoid misuse of CSR spending.
Inclusion of Goodwill under Tangible Assets
Clarificatory amendment should be brought for specific inclusion of Goodwill in the definition of block of intangible assets.
Reduction in rates of Dividend Distribution Tax (DDT)
Consistent with the reduction of rates of tax, the rate of Dividend Distribution Tax (DDT) may also be reduced suitably. For companies, the expectation is to witness simplification of dividend distribution tax which is triple taxation (corporate income tax, then dividend distribution tax and then tax on the dividends in the hands of recipients). This tax also impacts the return on investments, especially for foreign investors. In addition to reduction of tax rates, single taxation at a uniform rate would be crucial for the Indian economy to attract more investments.
Tax Benefits on R&D expenditure
To create an innovation ecosystem the Government of India has set up the Atal Innovation Mission (AIM), along with the Self Employment and Talent Utilisation (SETU) scheme administered by Niti Aayog. These programs are meant to facilitate school-level financial grants that help in nurturing the first layer of innovation. However, at the corporate level, there is a need for specific tax benefits to be provided to units engaged in the business of contract R&D to foster the growth of the R&D segment and to turn India into a R&D hub / research powerhouse.
Bringing Goods and Services Tax (GST) rates to three in line with international standards
India has been dealing with numerous indirect taxes for many years now and GST was considered as the most needed tax reform. However, there is a need to converge the existing band of GST rates to three in line with international standards. Further, to make the GST reform truly effective, all sectors including electricity, oil & gas, real estate, tobacco and alcohol should be within the ambit of GST.
GST: Clarity and Improvements
- The government should define and institute a clear and simple framework for claiming Input Tax Credit (ITC) in the GST regime.Accordingly, restrictions on claim of input tax credit needs to be removed.
- Quick refund of IGST paid on exports is recommended.
- The anti-profiteering clause of GST law should provide clarity on rules and regulations regarding assessment of valuation and impact of taxes.
- Processes related to GST compliances must be reduced so that business can operate efficiently. Filing of 37 returns per GSTIN is atime-consuming exercise. Thus,it should be simplified.
- Technological glitches of the GST network should be resolved on a war footing.
- The matching concept of input credits requires large volume of data of the supplier to be matched with that of the receiver. This process should be simplified, wherein only broad main criteria may require matching like the invoice value and the tax amount
- Further, there is also no provision to amend GST Returns once uploaded.Thus, in case some clerical error is found later,it cannot be amended. Provision should urgently be made to allow rectification of returns.
Amendment to the Special Valuation Branch (“SVB”) Law
Suitable amendment should be made in law to provide for time bound SVB proceedings rather than outlining it under a Circular.
Promoting downstream chemical industry products
Basic customs duty on Adipic Acid, Toluene DI Isocyanate (TDI), Desmoure 2460M (MDI) andIso Phthalic acid should be reduced from 7.5% to 5% to promote growth of downstream chemical industry products.
@EPC World Media