Our Predictions for the Union Budget 2017
The Union budget of India for the financial year 2017-18 promises to be a unique one and right off the bat in various aspects. For one, it would be the first time that the Railway budget and the General Union Budget would be merged since colonial India (prior 1924). Another first is the advance of the date of announcing the budget which would be done one month prior to implementation on the 1st of February, 2017. The Indian economic conditions have been quite unpredictable recently, growing at a steady pace of 7.6% until the demonetization announcement by the Prime Minister and the subsequent reduction in the pace of the economy. Businesses are being hit heavily by liquidity issues, most of the shake-up being felt by the Real Estate Sector, FMCG (Fast-Moving Consumer Goods) Sector and the Automobile Industry which were almost driven by cash transactions. But what does all this mean and what can you expect?
Reforms in Direct Taxes
The Minister of Finance indicated that lowering of tax rates would widen the tax base and increase revenue collection across the board. This leads us to expect a reduction in Income tax for individual taxpayers along with a lowering and standardisation in tax structures for the corporate sector. We expect the government to increase the tax exemption slab to Rs. 3 lakh from Rs. 2.5 lakh for individual taxpayers. The current system of triple taxation on dividend distribution for the corporates (corporate income tax, dividend distribution tax and the tax on the dividends for the recipients) is also expected to be simplified, our research tells us. A more simplified concept of single taxation is what we expect to see which would crucially attract investment in our economy. We also find that corporate tax would not be more than 25% from the headline rate of 30%. A reduction from 15% to 10% in the dividend distribution tax rate and a minimum alternate tax rate of 15% from the current 18.5% is also to be expected by companies.
Reforms in Indirect Taxes
The winter session of parliament was awash with protests against the move of demonetization and as a result, we predict that the budget for 2017 would bring us a very dulled and declawed version of the GST. The Union budget would also focus on developing non-tax revenue generating streams such as diluting the stake in public sector banks and insurance companies, further rationalisation of subsidies, disinvestment and the unlocking of assets by failing Public Sector Units.
A Boost to Digital Transactions
The main goal of demonetization has been to decrease the generation of black money by promoting cashless transactions. By discounting transactions through cards by waiving various fees and taxes, there has already been a great push given to such methods. Further benefits will be assured to those going cashless in transactions as a part of the 2017-18 Union Budget. The unbanked and under-banked sections of society will also be targeted through benefits for payment bank services.
The budget for 2016-17 was filled with statements which encouraged low-cost housing and brought out cheaper home loans of up to Rs 35 lakh to individuals. We expect these benefits will be extended to this fiscal year if not beyond, along with further tax breaks for individuals involved in the construction of such projects.
The Rabi season yield for the year 2017 is expected to show a decline owing to the lesser availability of new currency notes. To prevent an inflation on food caused by this, the government may make moves including additional benefits for farmers and greater access to cashless transactions for purchasing seeds, fertilisers and other essentials for crop rearing. Also, to kick-start agriculture, an increase of up to 7% in the central plan outlay for agriculture is expected.
Considering the merger of the Union Budget and the Railway Budget in the fiscal year 2017-18, we expect several populist measures to be keyed in. These would focus primarily on infrastructure development. We definitely think that the several train accidents reported recently will translate into more government expenditure on modernisation. A final sector specific announcement to promote foreign investment in the sector is also something to look forward to. The financial year ahead seems very challenging, and a country like India which is going through a lot of change in terms of its economy blossoming is something very exciting. We expect great things from the year ahead which will make for a very interesting market.