Budget 2013: What’s cooking for India Inc?

As India Inc stoically battles global slowdown, it continues to be challenged by uncontrolled inflation, constrained liquidity and, topping it all, instability in tax policy and the ensuing litigation. Union Budget 2013 should provide the financial, infrastructural, and policy-related direction needed to resuscitate the economy and put it back on the growth trajectory.

Although this year’s pre-budget activity is low-key for reasons such as the upcoming general elections in 2014 and announcement of major policy changes last budget, expectations remain unabated.

On February 28, when the Finance Minister rises to present the budget for 2013-14, aam aadmi will be hoping for no additional tax burden and, on the contrary, for some added relief in personal taxation. Corporate India expects certain corrections in the light of some of the Government’s recent actions.

Grant Thornton surveyed participants from over 300 corporate houses on India Inc’s expectations from the budget.

Inheritance tax: Recently, there has been a lot of buzz that the Government would introduce inheritance tax similar to the erstwhile estate duty. About 55 per cent respondents believe no such tax is likely to be introduced, while 34 per cent expect otherwise. Some suspect that the Revenue might sneak it in through some innocuous amendment to an existing provision.

Super-tax on rich: Nearly 62 per cent respondents fear there is likelihood of super-tax on individuals in the higher income group, though the general feeling is that instead of widening the tax base and reducing tax rates, penalising existing taxpayers is retrograde.

Relief on principal repayment of housing loan and borrowing cost: Given the steep increase in the buying price of houses, the key expectation is for a higher deduction towards repayment of principal (currently Rs 1 lakh under section 80C). There is also demand for higher deduction towards interest payout (Rs 1.5 lakh under section 24). These have been a longstanding demand of the middle class.

Overall limit for tax investments: With spiralling inflation and eroding purchasing power, individuals in the fixed income group want to save more to secure their future and would like an upward revision in the Rs 1 lakh limit on tax-saving instruments.

The corporate sector wants the Government to control fiscal deficit by focusing on investment and growth, introduce GST and bring fungibility between service tax, GST and so on. It expects maximum thrust for the infrastructure sector, and rightfully so, as that is a prerequisite for growth. Other sectors expected to be in focus are agriculture and manufacturing.

Tax rates: Companies do not expect any changes in the corporate tax regime.

Indirect transfers: The Government codified provisions to tax ‘indirect transfer’ of assets situated in India with retroactive effect in Budget 2012 after the debacle at the Supreme Court, but it failed to recognise that the provisions lack clarity and, as advocated by the Supreme Court, certainty for investors. There is no clarity on the meaning of the term “substantially”, the key factor for taxing Vodafone-style deals and the computation mechanism such as conversion of consideration received in foreign currency into Indian rupees and so on. Investors abhor uncertainty and look for clarity to be able to quantify the Indian tax consequences of such overseas deals. About 42 per cent respondents sought this clarity in the statute books.

Litigation-free environment: India Inc craves a regime that promotes consultative processes and checks unwarranted litigation — the latest issue to go under litigation is the notional attribution of interest income on alleged undervaluation of shares issued by an Indian company to its foreign parent. About 43 per cent respondents favoured introducing provisions for a less litigious tax system.

Corporate India hopes for a balanced and investor-friendly budget, and anticipates a rise in the stock market indexes on B-Day.

Pallavi Bakhru, a chartered accountant says, “People’s expectations from this pre-budget survey seem quite muted. The recurring and resonating expectation is for clarity and rationalisation. Industry and investors alike, want stability in tax policy.

In these taxing times (pun intended), the Government is expected to show budgetary prudence. The Government’s budgetary proposals on February 28 could be dictated by political configurations to garner support for the next elections, yet it owes accountability to the people of India and should assume responsibility for providing relief to the struggling economy. Else, we will tend to believe that blessed are they who expect nothing, for they shall not be disappointed!”