What India Inc expects from Budget 2012: Sense not sensation

On 16 March, Finance Minister Pranab Mukherjee will decide what the Indian economy’s immediate trajectory will be. But just days before Budget 2012, a detailed survey of the top bosses of India Inc shows that Corporate India expects a thrust on infrastructure, agriculture and education in this year’s budget, to put the economy back on a firm growth track.

In its Budget Expectations Survey 2012, consulting firm Grant Thornton surveyed participants from over 300 corporate houses across various sectors with the objective of gauging the pulse of India Inc on the expectations from the ensuing Budget.

[caption id=“attachment_240963” align=“alignleft” width=“380” caption=“Among the key findings are that while the Direct Tax Code (DTC) and Goods and Services Tax (GST) are not awaited in this budget, India Inc does expect the FM to take necessary steps to bring existing laws one step closer to both.”]  [/caption]

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Among the key findings are that while the Direct Tax Code (DTC) and Goods and Services Tax (GST) are not awaited in this budget, India Inc does expect the FM to take necessary steps to bring existing laws one step closer to both. Interestingly, with the Vodafone decision going against the income tax department, there is also a likelihood that Pranab Mukherjee may bring relevant changes to existing tax laws in order to ensure that Vodafone-like transactions are brought into the tax net.

Despite the drubbing the Congress has received in the recent state elections, India Inc is still hopeful that Mukherjee will push through some key long-awaited reform measures, or at least signal the government’s intent in this direction. To cater to the next level of reforms, India Inc is anxiously awaiting the opening up of FDI in multi-brand retail and insurance sector**,** as well as encouraging qualified foreign investors (QFIs) to invest in the Indian debt market.

One of the more significant changes which the Indian corporate sector expects is on the service tax front. With a view to widening the ambit of service tax, India Inc expects the government to levy a service tax on all services and introduce a negative list, exempting only the limited services mentioned in such a negative list.

India Inc does not envisage any major changes in the corporate tax rate, but there is a general view that the budget will announce relaxations on the personal taxation front. There is also the expectation of an increase in the limits of tax-saving investments from the present Rs 1 lakh and deduction of interest rates on home loans to provide relief to the common man, given the higher costs of living and the spike in borrowing costs.

With India Inc itself getting more serious on the corporate social responsibility (CSR) front, there is a view among most respondents to the survey that the government will amend tax laws to recognise corporate investments in CSR, with 67 percent of respondents of the view that the government will announce a scheme to promote investments in CSR. However, Corporate India is rather divided on the possibility of whether an amnesty scheme will be introduced in this budget to bring in unaccounted money.

Research and development (R&D) being the driver of the growth of any economy, India Inc also expects the benefit of the weighted deduction of 200 percent on in-house R&D to be extended.

Respondents are also divided over how the stockmarket will behave on budget day. While 42 percent feel the market will go up, 32 percent feel it will fall, while 28 percent say it will remain flat.

Among sector-specific expectations are the following:

Healthcare & Pharma: This sector expects incentives to boost hospital infrastructure development and medical device manufacturing industry as well as a policy to promote medical tourism.

Technology: The technology sector has been struggling with the issue of taxability of software payments, with views being expressed on both sides. This sector expects clarity regarding double taxation of software as well as withholding tax related issues in relation to software payments.

Real Estate and infrastructure: The real estate and infrastructure sector has been bearing the brunt of the economic slowdown, rising interest rates and other capital costs. This sector is eagerly looking at fiscal incentives to stimulate the supply of affordable housing and infrastructure. The real estate industry expects the FDI regime to be liberalised and incentives for affordable housing to be introduced, However, it does not expect the government to remove service tax on construction contracts. 64 percent of the respondents expect extension of tax holiday for power generating units that commence power generation beyond March 2012.

Insurance Services: The insurance sector seems to expect clarity with respect to non-applicability of MAT provisions to insurance companies.

Financial Services: The financial services sector expects a commodities transaction tax (CTT) on commodity trades to be introduced and extension of the tax regime to QFIs. However, they do not expect “passthrough status” to be accorded to all investments by venture capital funds (VCFs) and full tax deduction to banks in respect of provision for bad loans.