Union Budget 2021: Nirmala Sitharaman takes braver route to fix economy by not levying more tax

Changes on the indirect tax front are also not significant to qualify as changes large enough to be structural leading to increased demand or increased production of items

Pranay Bhatia February 03, 2021 19:53:39 IST
Union Budget 2021: Nirmala Sitharaman takes braver route to fix economy by not levying more tax

Representational image. MoneyControl

Budget 2021 was delivered against the backdrop of a global pandemic and all the challenges that it brought along. The expectation from this Budget was to see how the finance minister increased the overall spending and ensured something for everyone.

With the Economic Survey pointing at a deficit in tax collection, largely attributable to direct taxes, the expectation was to introduce tax proposals leading to an increase in tax collections. A bold step has been taken to not increase the levy for any taxpayer even though some larger economies such as the US are looking to meet their deficit through tax collections.

The Budget proposals appear to be long-term initiatives focusing on sustained growth based on six key pillars. While the focus continues to be on health and well-being, adequate consideration has been given to key themes advocated by this government -- infrastructure, financial inclusion, innovation and R and D, and governance.

An important aspect is a relaxation in the FDI limit for the insurance sector from 49 percent to 74 percent paving the way for higher capitalisation and foreign investments in this continuously growing sector.

Every Budget needs to balance income and expenditure, and this Budget is no exception. Though all the spending are primarily linked to the six pillars, fundraising is targeted through the sale of strategic assets. Guidance for the extent of sale is taken from the balance amount proposed to be raised from the budget of FY 2020-2021. This would mean that there is a lot of reliance on domestic consumption and collection of tax revenue through demand for goods and services.

On the tax front, there are very limited structural changes which have left one to wonder as to whether minimal tax changes would lead to stable tax policies or otherwise. With limited changes, there seems to be a missed opportunity to address various demands from a tax reform perspective.

If one observes the Economic Survey, there is clear guidance that not enough has been done to facilitate innovation and R and D activities on the ground. The current Budget seems to have missed this opportunity to encourage tech gigs to register their innovation and continue to contribute to the Indian economy.

The present proposals also do not provide any tax support to identified sectors such as infrastructure, telecom, startups, etc. which are key to the growth and survival of the Indian economy. Changes proposed to IFSC are extremely important and would hopefully provide a large impetus to new investments in India.

Changes on the indirect tax front are also not significant to qualify as changes large enough to be structural leading to increased demand or increased production of items. The focus on digitising compliances and litigation, reducing the compliance burden on taxpayers by removing the need for GST Audit, etc. have been commendable.

There is also an intent to correct some of the ongoing mechanisms which are not meeting taxpayer objectives, such as settlement commission, advance ruling authorities, etc.

The introduction of the dispute resolution mechanism would also go a long way in meeting the taxpayer charter and inspiring confidence. Though a lot was desired, the present proposals should lay a strong foundation for sustainable development leading to a stable economy meeting the expected growth trajectory.

The writer is Partner and Leader - Tax and Regulatory Services, BDO India

Updated Date:

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