The government is all set to present its last Budget before the general elections kick in. There are speculations as to whether the Budget will be a mere Vote on Account or something more than that. There have been few hints from the finance minister that this time there could be a deviation from the convention of providing a simple Vote on Account. We have set out below some of the key expectations from the Union Budget 2019.
Relief in personal tax rates
There is an expectation from the common man that on the personal taxation front, some relief be granted in tax rates and deductions. This move may have a positive sentimental impact without sacrificing any large revenue. On the corporate taxation front, over the past few years, the government has started phasing out the tax incentives and has correspondingly reduced the tax rate for companies not exceeding turnover of Rs 250 crores. With key global economies like the US going for significant rate cuts, the government may do well to bring down the corporate tax rate for all the companies, irrespective of the turnover criteria. The need of the hour is also to bring down the tax rate of Limited Liability Partnerships (LLPs) so as to bring in parity with the tax rates of companies.
Demystifying taxation on digital economy
Recognising the gravity of the menace and waking up to the alleged tax avoidance concerning the digital economy, India has set a precedent in taxing digital economy with introduction of Equalisation Levy (EL) on online advertisements in 2016, as well as bringing in the concept of significant economic presence (SEP) in 2018. While the
intention of SEP was to tax digital transactions, the language of the provision seems to cover sale of physical goods as well. In the context of services, it appears that even where the service is completely rendered outside India, it could still lead to constitution of SEP in India. Further, there is no mechanism prescribed for determination of profit attribution to SEP. It will help the cause of the industry if the government can demystify the above aspects.
Angel Tax issues
There has been a lot of buzz around the issue of angel tax in case of startups. A recent notification issued by DIPP, to some extent, simplifies the process for startups to obtain an exemption from tax implications on issue of shares by startups at a premium. However, the scope of this notification is restrictive in nature. Therefore the need of the hour is to widen the scope of this notification to cover all the startups post-due verification of the genuineness of the transaction by the nodal authorities of the Government. This will help the industry in mitigating one of the major issues affecting the startups and promoting the start-up eco-system.
Simplifying GST procedure
Major changes are not expected on the Goods and Services Tax (GST) front as the GST Council has already made substantial changes in the last two meetings. However, it is anticipated that the government may simplify the GST implementation procedure in order to avoid confusion and ease some ongoing technological challenges being faced by the traders.
New direct tax code
The Vote on Account could also be a window for the government to make some announcements in relation to the proposed Direct Tax Code, aimed at repealing the current law, which is perceived to be complicated, lengthy and open to different interpretations.
Though this Budget might not be a full-fledged one, but it will surely give the government an opportunity to make grand announcements for the things to come in the future if it is re-elected. Notable announcements can be expected on the availability of credit to the rural, MSME and health sectors. It is also expected that the Government may provide relief to the farmers by rolling out agricultural relief packages, thereby providing some respite to the farm sector crisis.
All the speculations around the Budget will rest when the story is unravelled on 1 February.
(The writer is Partner and Head, Corporate and International Tax, KPMG in India; Maulik Mehta and Ravish Kotadia, chartered accountants, contributed to this piece)
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Updated Date: Jan 30, 2019 12:23:45 IST