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New Indian Finance Minister Kicks Off Pre-Budget Meetings

Posted on June 13, 2019

Indian Finance Minister Nirmala Sitharaman heard from industry representatives who are urging corporate tax reforms in the full fiscal 2019-2020 budget.

Sitharaman, who was appointed finance minister following Prime Minister Narendra Modi’s general election victory, has started to meet with stakeholders ahead of the scheduled July 5 presentation of the full budget. She stepped into the role after former minister Arun Jaitley opted out of the new government for health reasons.

A June 11 meeting with representatives of industry, services, and trade groups brought forth several suggestions on how to encourage investment and fuel economic growth, including tax relief measures. A Ministry of Finance release does not indicate whether Sitharaman took a position on the proposed reforms. However, it highlights her opening remarks, which focused on government initiatives that have improved the country’s business environment.

“As a result [of these initiatives], the finance minister said that India has considerably improved its ranking to 77th position among the 190 countries and has kept 23 ranks over its rank of 100 in the Doing Business Report 2018 as per the World Bank Doing Business Report, 2019,” the June 11 release states.

Industry leaders have been pushing for a reduced corporate tax rate of 25 percent for all companies, following a gradual rate reduction based on company turnover over the past few years. Jaitley had assured industry leaders that the corporate rate would be reduced for all companies once collections improve under the country’s goods and services tax regime, according to Sandip Somany, president of the Federation of Indian Chambers of Commerce and Industry, which continues to press for the lower rate.

“The focus of the government in the budget has to be on spurring investment,” Somany said in a June 12 release. “Cost of doing business is very high in India, and while there is a need for reducing the interest rate by at least 100-150 basis points, the corporate tax rate too must be cut for all the companies to 25 percent from the current 30 percent.”

Somany also stressed the need to further simplify the GST regime and review the minimum alternate tax, echoing pleas made in May to Ajay Bhushan Pandey, revenue secretary with the Ministry of Finance.

The Confederation of Indian Industry (CII), which also met with Pandey in May, likewise reiterated its call for cutting the dividend distribution tax to 10 percent and suggested lowering the corporate tax rate to 25 percent, and then ultimately to 18 percent.

“A simplified taxation regime is pivotal for improving the revenue flows and [to] help government stick to fiscal prudence without crowding out private investments,” CII President Vikram Kirloskar said during the Sitharaman meeting, as quoted in a June 11 release. “For this to fructify, a timeline for a taxation regime (direct tax) needs to be announced where the highest rate should be 18 percent, in addition to removing all exemptions and not doing grandfathering.”

Boosting Consumption

Underscoring the need to “buttress consumption,” the CII pressed for increasing individual disposable income by decreasing individual income tax burdens. To this end, Kirloskar recommended that the government impose “zero tax till Rs. 5 lakhs with a simple return to file.”

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) suggested the same individual income tax relief in light of inflation, noting in a June 8 release that its pre-budget memorandum recommended increasing the tax exemption limit from INR 250,000 [approximately $3,600] to INR 500,000 [approximately $7,200].

During the meeting with Sitharaman, ASSOCHAM President Balkrishan Goenka “recommended that 100 percent depreciation should be permitted in the first year of investment for all new investments, be they [foreign direct investment (FDI)] or domestic,” according to a June 11 release. He also noted that FDI proposals have faced delays in the approval process after the Foreign Investment Promotion Board was abolished, and suggested a centralized agency to handle such cases and country-specific desks for “major FDI source countries.”

ASSOCHAM expressed concerns with India’s GST regime, with Goenka pointing out that “a lot of embedded taxes still remain in certain industries which are not covered under GST for which input tax credit is not available, resulting in increased cost of the product.” Highlighting the need for globally competitive exporters to boost Indian exports, he called for a scheme to provide refunds of embedded taxes across all sectors, according to the release.

Goenka further proposed a simplified two-tiered GST rate structure with rates of 8 percent and 16 percent. Jaitley had envisioned moving toward a more streamlined GST rate framework — to a structure with a zero rate, a 5 percent rate, and a standard rate, with exceptions for luxury and sin goods — and the Bharatiya Janata Party’s 2019 Lok Sabha election manifesto reflected a pledge to simplify the GST regime through “engaging in dialogue with all stakeholders.”

The Economic Times reported that the GST Council may consider removing more items from the highest 28 percent bracket during its next meeting, scheduled for June 20, following its December 2018 decision to cut rates on several goods and services.

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