Land mark legislation (policy measures such as getting GST off the ground), international consensus (through rapid tax exchange agreements, treaty amendments & multi-lateral instruments such as BEPS), surgical strike (demonetisation, amnesty schemes) & then sudden pause (parliament deadlock); these broadly define the themes we witnessed in 2016.
Now, all eyes are firmly set on the upcoming Budget on 1 February, 2017 which will also for the first time see the merger of the Railway Budget into the Union Budget. Post the demonetisation effect, the Finance Minister has a challenging task ahead to reverse the sudden economic slowdown while at the same time continue the reforms path and rein in the fiscal deficit. That our country ratings have not been upgraded despite fast-paced GDP growth over the past few quarters will imply, building greater trust on the quality and pace of reforms. Budget 2017 will have to provide clear answers to how India intends to actually implement its focus on growth & transformation. Besides this, the budget session will also need to ensure that the parliament functions overtime to catch up for lost business and get back to business to push through much spoken about reforms!
Budget 2017 will be crucial for banks and financial institutions who have lent a major hand in the demonetisation and will now need clear direction on the speed of re-monetisation and the availability of crucial growth capital to kick start the lending cycle.
For corporate India, 2017 will test their ability to focus on growth through periods of uncertainty and there will be a sense of expectation on a simplified tax code and a faster tapering of corporate tax rates consistent with the trends seen globally including landmark reforms anticipated from the US under its new President. On the international tax front, Mauritius & Cyprus treaties have been successfully amended, Foreign Tax Credit (FTC) and “Indirect transfer” provisions have been clarified. The upcoming year will test the implementation of Base Erosion and Profit Sharing (BEPS), General Anti-Avoidance Rules (GAAR) & Place of Effective Management (POEM) provisions and a smooth transition and clarity on implementation would be clearly sought after by industry.
While during the past year, the government has undertaken several laudable measures to reduce tax litigation & enhance ease of doing business ( over forty circulars were issued by the board), the government will have to continue its dialogue with tax payers/industry & find continuous ways and means to ensure tax positions and audits are consistent with policy announcements. Complex litigation with major investors into our country including Cairn India, Nokia, Vodafone continue to attract global attention and we have an opportunity in Budget 2017 to create a framework to resolve such complex litigation which is now before International arbitration.
The common man expects a sweetener this time around in Budget 2017 with greater hopes for resetting the tax slabs and a consolidation of fiscal incentives to promote the digital leap, post demonetisation.
Budget 2016 announced a string of tax sops to attract corporates to India's First International Financial Service Centre (IFSC), which is indeed attractive and is witnessing other regulators fine tune their regulations to make the IFSC globally competitive and make a compelling case to do business in India. We should see India's first IFSC operational in 2017 which will inter alia allow Indian corporates have a new window to finance their growth & overseas financial institutions with a new platform to do business in India.
Various policy announcements giving a boost to the infrastructure & agricultural sector are expected to find special mention in Budget 2017 and the early allocation of funds (with the advancement of the budget) is expected to result in increase in fund flow to revive growth. The government is widely expected to be a doer and enabler in this crucial budget and we have a chance to truly make it India’s chance to fly again in Budget 2017.
The writer is Partner - Direct Tax with PwC India
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Updated Date: Jan 16, 2017 17:45 PM