Post-demonetisation, common man’s expectations of the Union Budget are high. Specific Budget proposals should be do-able in a time-bound manner and bely the general perception of the Government being long on commitments and short on achievements
This year’s Budget, which is scheduled early next month, will be path-breaking for five reasons. First, it will be presented on February 1, instead of February 28, as was the practice earlier. Second, this will be the first unified central Budget — the railway budget will merge with the Union Budget. Third, this Budget will do away with the distinction between planned and non-planned expenditure. Fourth, this will be the first Budget post-demonetisation. Fifth, it will also be the last Budget before the introduction of the Goods and Services Tax (GST), which in itself is a path-breaking fiscal reform.
The ongoing drive to bring more money under the tax net must, therefore, be continued by promoting cashless transactions. After demonetisation, expectations are high that the upcoming Budget will pass on some benefits to the common man. Considering the windfall gains that the Government may have owing to increased tax revenues, there would be some scope to realign the tax slabs to the taxpayer’s advantage. The Government may consider hiking the tax exemption limit by at least Rs1,50,000 to Rs400,000. The income tax benefit under Section 80C of the Information Technology Act may be enhanced by another Rs50,000 to Rs2,00,000.
Alternatively, the income tax rate may be simplified — say, no tax up to Rs500,000; 10 per cent for income exceeding Rs500,000 up to Rs10,00,000; 15 per cent income exceeding Rs10,00,000 up to Rs15,00,000; 20 per cent for income exceeding Rs15,00,000 up to Rs20,00,000; and 30 per cent thereafter without any exemption. Corporate tax and other indirect taxes may be revamped keeping in view GST requirement.
With an increase in banked funds over the past couple of months, increased tax deduction limits may encourage the utilisation of these funds towards desired long-term investments. Also, restoration of tax deduction towards investment in infrastructure bonds (earlier under Section 80 CCF of the Act) could stimulate growth in the infrastructure sector.
Currently, a deduction limited to Rs10,000 per annum is available under Section 80TTA of the Act, only towards interest on savings bank deposits. The Government may extend this to fixed/term/recurring deposits, etc, while also enhancing the deduction limits to at least Rs20,000 per annum.
Also, upward revision of age-old limits of certain tax saving deductions/exemptions is being hoped for, to compensate for the increased cost of living. Amongst the popular ones, with respect to tax-free medical reimbursements, there is an expectation to increase the limit to at least Rs50,000 per annum from the current Rs15,000. With respect to leave Travel Allowance, which is now available for two journeys in a block of four calendar years for travel within India, it can be realigned to at least one journey in each financial year and also extended to include overseas travel, which has become common owing to reduced airfares and better pay packages.
While the common man’s expectations from Budget 2017 are soaring high, one should be mindful of the overall objective of the Government, which is to curb the menace of black money and encourage wider tax compliance. With the benefits, one can also expect enhanced disclosure requirements in the tax returns forms and documentations requirements for the tax deductions, to achieve better tax compliance. The ongoing drive to bring more money under the tax net must be continued by promoting cashless transactions.
Prime Minister Narendra Modi, in a recent speech in Gandhi Nagar, reiterated his Government’s commitment to a paradigm shift “from relationship-based governance to system-based governance, discretionary administration to policy-based administration, random intervention to technological intervention, favouritism to level playing field and informal economy to formal economy”.
The Budget should, therefore, contain concrete proposals on each area of the shift indicated in the Prime Minister’s medium-term vision. Specific Budget proposals should be do-able in a time-bound manner and bely the general perception of the Government being long on commitments and short on achievements.
The war against black money, corruption, counterfeits notes and illegal activities have reached critical phase. The trick of providing carrots to unscrupulous tax evaders through voluntary schemes has not been very successful. Hence, strict laws have to be passed for stringent action against them.
Despite facing hardships due to demonetisation, ordinary people continue to support the initiative in the hope that the Government will punish tax evaders severely. The Budget should pursue follow-up measures to expeditiously book tax evaders as well as to normalise the distribution of new currency notes so that the adverse impact of demonetisation on GDP growth is contained.
There is a great opportunity for the Government to give a big push to cashless digital transactions (CDT). Although several measures have been taken, they are not enough since most of them are works-in-progress. A comprehensive agenda has to be included in the Budget as suggested by the Watal Committee. Digital transactions should be incentivised and cash transactions dis-incentivised to enthuse users to make the shift. There should be clarity on several issues relating to CDT like cyber security criteria such as privacy, integrity, availability, confidentiality, non-repudiation and customer protection.
Banking cash transaction tax, as suggested by the Shome Commission, is not a good idea when five States are going to polls. The Government can make it mandatory for all business-to-business, business-to-Government, business-to-customer, Government-to-business and Government-to-citizen transactions to be in the digital mode. The implementation of the GST cannot be delayed too long. This year’s Budget is essentially a prelude to the GST rollout. Union Finance Minister Arun Jaitley may have to tweak tax proposals in order to make the implementation of GST seamless.
The Government is expected to garner additional revenue of at least one trillion rupees in 2017-2018 from unaccounted income likely to be detected following demonetisation. This would help achieve fiscal consolidation this year. As there is not much threat to fiscal consolidation due to higher revenues after demonetisation, there is elbowroom for the Government to provide some tax relief to both salaried class and the SMEs sector.
Conclusively, the Government must crack down on tax dodging by corporate and rich individuals to end the era of tax havens. It should generate funds needed to invest in healthcare and education. The Government must increase its public expenditure on health from one per cent GDP to three per cent of GDP and on education from three per cent of GDP to six per cent. In view of the serious security threat perception from our two adversaries the defence budget may have to be enhanced from 1.7 per cent to three percent of GDP for modernisation of defence forces.
(The writer is a retired professor of international trade)