First published in April 2015
India’s Finance Minister Arun Jaitley recently announced the Union Budget 2015 – and he predicted an 8 — 8.5% GDP growth rate for the next financial year, the highest for large-sized economies in the world.
The first full budget of the Modi government tries to boost the economy to help the third generation reforms to take off. Aiming to enhance the ease of doing business, the pro-growth and pro-reform budget provides the necessary impetus to lift the business sentiment. The budget embodies big ideas – but it will be more important to see how these ideas and proposals are implemented, so that results will be visible for everybody.
The key features of the Budget are as follows:
- Aiming for minimum government and maximum governance, an e-biz portal has been launched which integrates 14 regulatory permissions in one source
- An expert committee shall be appointed to prepare a draft legislation for obtaining regulatory clearances quickly
- New composite foreign investment cap policy to increase flexibility to seek foreign investment and remove separate sub-caps for FDI and FII/FPI
- Setting up a Public Debt Management Agency to develop the bond market and bring India’s external and domestic debts under one roof
- Tax-free infrastructure bonds for projects in roads and railways
- Foreign investment in Alternative Investment Funds will be allowed
- Creating a ‘sector-neutral’ Financial Redressal Agency to address all grievances related to financial services as well as establishing an Indian Financial Code to integrate financial laws and a comprehensive Bankruptcy Code to provide necessary judicial capacity.
- Introducing a Public Contracts (Resolution of Disputes) Bill to fast-track resolution of disputes and streamline institutional arrangements.
- Ports in the public sector are to be corporatized in order to attract investment and unlock the value lying unused.
- Setting up exclusive commercial divisions in various courts in India for speedy resolution of commercial disputes.
- Introduction of the concept of Place of Effective Management to determine the residential status of a company in India.
- Implementation of General Anti Avoidance Rules, which were initially introduced in the Finance Act in 2012, has been deferred by two years and will apply after April 1, 2017.
- Corporate tax rate is set to be reduced from 30% to 25% in a phased manner over the next four years, accompanied by rationalization and removal of various kinds of tax exemptions and incentives for corporate taxpayers.
- To lessen the burden for small entities and facilitate technology inflow, the rate of tax on royalty and fees for technical services earned by non-residents shall be reduced from 25% to 10%.
- Modification of Permanent Establishment (PE) norms so that mere presence of a fund manager in India would not constitute PE of the offshore funds resulting in adverse tax consequences.
- The benefit of additional deduction for employment of new regular workers is extended to all business entities having threshold of 50 regular workers.
- Threshold for specified domestic transactions is increased from INR 50 million to INR 200 million, to attract transfer pricing provisions.
- Introduction of Goods and Services Tax (GST) by April 1, 2016. GST is expected to develop a common Indian market and reduce the cascading effect on the cost of goods and services.
- The effective rate of service tax (including Cess) is proposed to be increased from 12.36% to 14%. An additional Cess (the Swachh Bharat Cess) of 2% on service tax can be imposed.
- To strengthen the measures to tackle black money from assets outside India as well as from domestic transactions, it is proposed to enact comprehensive new laws on black money.
Arun Jaitley has capitalized on the fact that the Indian economy is in a ‘sweet spot – rare in the history of nations’. Inflation is under control, global oil and commodity prices remain subdued, and macroeconomic fundamentals are stable. The Union Budget 2015 has not only put wind in the sail, but also set the ship sailing in the right direction – India is now raring to go once again!