Union Budget 2014: the winning Goal!

Union Budget 2014

Probably the only event that could generate more excitement in India other than the ongoing Football World Cup, is the upcoming Union Budget 2014, to be presented by the new Finance Minister Mr Arun Jaitley on July 10, 2014. After a decade long rule by UPA, Prime Minister Mr Narendra Modi led NDA has inherited a troubled economy. This is notwithstanding healthy trends since last 2 months that can perhaps be attributed more to the feel good factor and anticipation of big bang reforms in the upcoming Budget.
In NDAs Election Manifest0, it claimed that the predecessor Government unleashed Tax Terrorism and uncertainty in Indian tax regime, and made an assurance that achhe din are round the corner. However, the reality is that Mr Modi and Mr Jaitley do not have too much legroom, given the tight economic situation, something that they have been candid about, without shying away from tough and potentially unpopular economic decisions. The hike in Railway fares was just an example.
Keeping all this in mind, the Government could potentially look at the following measures vis-a-vis the corporate sector:
Sops for the auto and auto ancillaries sector
The auto sector continues to be under tremendous pressure due to increasing input costs, leading to stagnation, despite increase in volumes. With extension in lower excise duty regime already announced last week, this sector will benefit from measures such as export incentives and incentives for electric and hybrid vehicles to name a few. Reforms in safety norms and emission control norms will also be welcomed.
Sops for the manufacturing sector
To position India as a factory to the world that can produce world class goods, a very serious package, enveloping land acquisition reforms, labour reforms and investment in training of manpower, availability of easy and inexpensive financing, simplification of both direct and indirect tax regimes, introduction of tax and other incentives such as export incentives, is needed. The Government will also need to make the State Governments partners in this endeavour.
Sops for the IT / ITeS sector
With increased global competitiveness and emergence of newer low cost jurisdictions, this sector is also struggling to maintain its growth rate. Incentivising investment in SEZ Units, restoring the Minimum Alternate Tax (MAT), exemption to SEZ Units and re-introduction of income-tax holiday, such as the Software Technology Park (STP) exemption, could boost this sector.
Sops for the infrastructure sector
Infrastructure is the backbone to improvement of the economy & long term vision and an equally powerful impetus. Infrastructure in this context would include sectors such as roads and highways, power, industrial zones and SEZs, free trade and warehousing zones, airports and ports etc. Apart from tax and other incentives, larger policy reforms like single window clearance for large scale projects, resolving intra-departmental issues in an orderly & timely manner and access to larger domestic and international borrowings, is needed.
Financial sector reforms
The Government needs to focus on giving a boost to the banking, insurance and pension sectors, which directly touch the lives of the common man. Increasing the penetration of this sector, preventing a lay person from being misguided in our complex financial environment through investor awareness measures, providing stiff penalties for mis-selling & gathering intelligence on money outside the banking system are some of the areas that the Government and the various regulators could focus on.
Introduction of Goods and Service Tax (GST)
With benefits spanning across sectors and reducing inefficiencies in the current cascading tax system, introduction of GST is the single most important tax reform that the Government could focus on immediately. This reform cannot be kept in limbo any longer and the Government will need to work with the States to devise an acceptable revenue sharing formula quickly.
Rationalization of the retrospective amendment on indirect transfer of shares
The retrospective amendment on indirect transfer of shares is one of the main reasons for such a negative outlook that foreign investors have about certainty under the Indian tax system. The Government will have to quickly act to dispel such a notion, and while the public comments do not indicate a complete withdrawal of the retrospective amendment, some rationalization is necessary. This will go a long way in improving the sentiment of genuine foreign investors across sectors.
Approach towards Transfer Pricing
Another reason why the Indian tax authorities have earned a bad name is because of an overly aggressive and unreasonable approach towards Transfer Pricing. Taxpayers have been complaining for years that the tax authorities conveniently ignore business realities and resort to high pitched Transfer Pricing adjustments merely to meet revenue targets. The Government needs to lay down clearer guidelines with respect to Transfer Pricing adjustments. Also, it needs to make the recently launched Advance Pricing Agreement (APA) and the Safe Harbour programmes a success to instil confidence in the minds of the taxpayers.
The ideology of Minimum Government and Maximum Governance needs to be absorbed within the Indian tax administration. While this Budget will not be just a populist tool - showering sops to all and sundry; but instead it is hoped that it will be a wise step in the right direction - one that gives sops and takes necessary measures that can keep the inflation and deficits under control and at the same time re-energizes the sagging economy.



Niveza Editorial Desk : We are a team of stock market nerds trying to stay ahead of the herd. We spend our grey cells everyday to a pave a smooth road for our clients in the shaky world of stock market. While tracking the mood swings of the market we bring our clients the most rewarding deals.



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