All eyes are on the Narendra Modi Government as it is scheduled to unveil its first full-fledged budget in Parliament on February 29. The expectations of Indian industry are running high amid the anticipation of big bang reforms which will give a fillip to the manufacturing sector and allow entrepreneurs to do business more smoothly. As the countdown for the D-Day begins, Bureaucracy Today brings to its readers the hopes of industry bodies and corporates cutting across sectors from the Union Budget for 2016-17.
From seeking infrastructure support for setting up charging stations for electric cars to having a budgetary allocation for cyber security and from its demand for the abolition of excise duty on pesticides to greater visibility on the Startup India initiative, industry has gone on record with its own wishlists and suggestions as Finance Minister Arun Jaitley is burning midnight oil thick and fast to present the most awaited Union Budget for 2016-17 in Parliament on February 29.
BANKING SECTOR’S WISHES
Amid private sector investment growth remaining tepid in 2015, the banking sector has given a clarion call for higher savings to improve investment activity in the economy. In a recent meeting with the Finance Minister, the representatives of several banks and financial institutions, including RBI Deputy Governor Urjit Patel, SBI Chairman Arundhati Bhattacharya, Bank of Baroda Executive Director BB Joshi and LIC Chairman SK Roy, pitched for a significant hike in tax breaks to promote savings in India.
The bankers demanded that the Government should increase the Income Tax exemption limit to Rs 2.5 lakhs for savings and give incentives for encouraging cashless transactions, including through debit or credit cards.
They also advocated the listing of non-life insurance public sector undertakings at the stock exchange while retaining major Government control over them. The bankers demand that they should be allowed to issue offshore INR bonds to cater to infrastructure requirements and regulatory treatment of these bonds on a par with the domestic infra bonds guidelines.
INDUSTRY BODIES’ DEMANDS
Industry bodies cutting across sectors are looking forward to major tax reforms which will help reduce compliance burden and cash outflows for business firms.
While the Confederation of Indian Industry (CII) and the Federation of Indian Chambers of Commerce and Industry (FICCI) have urged the Government to either withdraw or reduce the Minimum Alternate Tax (MAT), the IT industry body NASSCOM has advocated exempting startups from direct and indirect taxes, including the MAT.
The CII, headed by Dr Parthasarathy Shome, in a statement says, “While removing MAT, it should be clarified that MAT credit can be carried forward and set off against their normal tax liability in future.” On the issue of reducing corporate tax, the CII feels that the rate of tax should be 22% inclusive of surcharge as against the current 35 per cent.
In a similar vein, the FICCI states, “As the Government draws up a plan to eliminate exemptions and reduce the corporate tax rate, we feel that it must simultaneously look at reduction in the Minimum Alternate Tax rate.” It also says that the Government should “give up the policy of setting tax collection/revenue targets for tax officers, since tax collections vary with the economic cycle/business conditions. Judiciousness and fairness in the assessment orders passed by tax officers should be made a criterion for performance appraisal of the assessing officers”.
The National Association of Software and Services Companies (NASSCOM) says, “There is also an urgent need to remove angel tax that serves to tax capital receipts when finances from banks and venture capital funds are unavailable and the angel fund is the only available source.”
The body also recommended that companies be allowed to carry forward losses even if there is a change in ownership structure. “Policy regulations like the ease of compliance, reliance on self-certification instead of audits and tax exemptions for startups will allow entrepreneurs to devote their time, energy and resources to build upon their innovative ideas,” NASSCOM President R Chandrashekhar says.
The Manufacturers’ Association for Information Technology (MAIT), the apex body representing IT manufacturers, has called for faster clearances and streamlining of procedures to improve the conditions for doing business in India.
According to the World Bank’s Doing Business 2016 data, India currently ranks 130, which is way below China which is ranked 90. The MAIT has highlighted certain complexities in existing procedures that are creating bottlenecks for IT manufacturers in conducting their business effectively.
MAIT Executive Director Anwar Shirpurwala says, “At present there are multiple regulatory and operational issues plaguing the Indian manufacturing sector, and the IT hardware industry in particular. If the Government is serious about campaigns like the Make in India these issues will have to be resolved quickly. The business environment in India has to be improved and brought on a par with other countries.”
As part of its pre-budget recommendations to the Government, the MAIT suggested reduction of time taken for customs clearances and incentives to encourage domestic manufacturing.
“While the Digital India mission can give a big boost to domestic consumption of IT goods, to achieve the ambitious target of Net Zero Imports the Government would need to take concrete steps to ensure proper utilization of domestic manufacturing capacities. The existing capabilities of IT manufacturers have so far remained underutilized due to an adverse tax policy and a poor eco-system,” asserts Shirpurwala.
He also says that there should be a convergence cell to improve clarity in product classification. “IT products get introduced into the world market on a daily basis and are imported into India. The nature of the industry is such that in practically all cases the time span of obsolescence is very short. This requires clarity in classification and rapid decision making by the Customs authorities. Therefore, it is suggested that a Convergence Cell be formed to decide on the classification of new IT products within 30 days of representation to reduce instances of confusion and cases of litigation,” Shirpurwala says.
The Telecom Equipment Manufacturers Association of India (TEMA) demanded the grant of infrastructure status to domestic telecom equipment manufacturing companies complying with PMA provisions. “The move will help the industry to take benefits of the incentives given to the infrastructure sector,” says TEMA Chairman Emeritas NK Goyal.
Demanding research and development support, the Association proposed the introduction of a 5% cess on telecom service providers to create a corpus for supporting R&D for technology development in the telecom sector.
Goyal also says, “The Government had levied duties on non-ITA products in the last Union Budget where some of the telecom products have been brought under the duty regime. There are many telecom or ICT products which are being imported into the country under ‘others’ category at zero duty. The products falling under this category and are outside the scope of the original ITA list, may suitably be reviewed and may be brought under the duty regime of about 25%.”
The TEMA also proposed the extension of benefits under Section 35 AD of the Income Tax Act to domestic telecom equipment manufacturing companies which are complying with the PMA provisions to encourage electronics and telecom equipment manufacturing in the country.
Amidst the Modi Government making efforts to reduce carbon footprints, the Society of Manufacturers of Electric Vehicles (SMEV) is expecting infrastructural support from the upcoming budget so that people may migrate to the electric vehicle without any hassle.
Sohinder Gill, Director-Corporate Affairs, SMEV, says, “In the previous Union Budget for 2015-16, Faster Adoption and Manufacturing of Electric and Hybrid Vehicles policy was unveiled by the Central Government. It was anticipated that there will be reduction in pollution and crude oil consumption. But the sale of electric two-wheelers and cars has not picked up. At present the manufacturing base of the electric components and the batteries for electric vehicles is almost non-existent nor do we have the public charging infrastructure to support such electric vehicles.”
Gill says the Government should provide infrastructure support for setting up charging stations in at least top 50 cities where there is a significant population of EVs. “The industry also needs financial and technology support in the area of technology development and Make in India specially related to next generation electronic, electric and battery technology. Another issue is related to the availability of finances. Banks have been reluctant to provide loans for the purchase of electric two-wheelers. The Centre needs to direct public sector banks to offer loans at a zero-interest rate,” he says.
AGRICULTURE SECTOR’S SUGGESTIONS
Amid the slump in the agriculture sector, representatives of the Fertiliser Association of India and many other agriculture bodies held a pre-budget meeting with the Finance Minister and stressed the need for more investment in the farming sector and revamping the incentive structure for farmers.
The Fertiliser Association of India sought the introduction of a system of direct transfer of urea subsidy to farmers and higher budgetary allocations for the next three years to clear the arrears of Rs 50,000 crore.
The agriculture bodies also demanded that the Government should do away with the interest subvention scheme for crop loans and take corrective measures to provide institutional credit to small farmers.
Voicing his expectations from the 2016-17 Union Budget, the Group Chairman of the DhanukaAgritech, R G Agarwal, says, “Undoubtedly, pesticides play a significant role in enhancing agricultural production. I expect that the Union Budget would provide a sizable fund for education and training of farmers and agri-input dealers. I hope that the Government will provide special incentives for pesticide industries. Agrochemicals like chemical fertilizers are essential inputs for achieving a significant increase in crop productivity. I also hope that in the ensuing budget, instead of stepmotherly treatment to agrochemicals, the excise duty on pesticides will be abolished.”
STARTUPS WANT TAX INCENTIVES
With the Modi Government recently launching the Startup India initiative and ensuring a “friendly tax regime” for the sector, expectations are high across industries as the Union Budget for 2016-17 is going to be a huge "make or break" factor for budding entrepreneurs.
Earlier in mid-January, Revenue Secretary Hasmukh Adhia had said at the Startup India event in Delhi that the upcoming Budget would look at several announcements around startups. He also said that some tax incentives to encourage the startup ecosystem, like rationalising service tax rules, are also likely to be announced in the Budget. At the same event, Finance Minister Arun Jaitley said, “The Budget will announce a friendly tax regime, encouraging setting up of the startups in the country.”
Expressing his expectations from the upcoming Union Budget 2016, Ashwani Rathore, CEO and Co-Founder of the Pune-based technology startup, SpiderG, says, “Facilitating the TDS claim in an easier manner for startups would be an important move. At the initial stages, startups may suffer losses, but that doesn’t stop banks and sellers from deducting TDS. This affects the liquidity of startups negatively.”
Section 56 (2) of the Income Tax Act makes startups liable to pay taxes on any investment received. Also the sale of unlisted securities within three years of investment is liable for taxation, as short-term capital gain. This gain cannot be set off against any loss for similar investments. “Startups and angel investors, trying hard to raise money, are hit hard by these clauses,” Rathore says.
Darshan Patodi, Co-founder of a startup in traditional attire space named yellowfashion, says, “My expectations from the Budget are clarity on a GST roll-out and greater visibility on the Startup India initiative and the bodies which will control and implement the proposed plan. I would also expect foreign direct investment in E-commerce in the new fiscal year.”
Lovleen Bhatia, Co-founder and CEO of Edureka, asserts, “We are looking forward to getting a conducive fiscal structure around easy availability of the newly announced corpus, along with relaxed taxation in the initial struggle years of a startup.” Edureka is a startup that is redefining online professional education in India.
Govind Bansal, Co-founder of Aqua Mobiles, says, “Since the mobile industry is a good contributor to India’s GDP, it should be rewarded with much-needed incentives like relaxation in corporate taxes for the benefit of the industry as well as consumers."
Against the backdrop of the recent incidents of hacking the websites of the Assam Police and the Kerala and Odisha Governments, startups in cyber security space are hoping for a separate budgetary allocation from the Central Government to combat cyber crime.
Tarun Wig, Co-founder of Innefu Labs which is working in online security space, says, “The present scenario is quite threatening as we saw recently the websites of the Kerala and Odisha Governments come under cyber attack. The Central Government should allocate a specific amount in the budget to prevent these types of cyber attacks.”