Budget 2017: A major shift in tax policy

Sachin Menon

It is said that in ancient India most of the landmark palaces and structures were built during economic recession as these activities created jobs and ushered in economic activity. We are also going through volatile economic situation thanks to global trends ranging from potential oil price increase, expected US policy shift to our own initiative of demonetization and introduction of GST. In this back drop, it was expected that the Government would step up spending in this year's budget in infrastructure, rural development and agriculture.

It is not surprising to see a well packaged budget setting out priorities appealing to the common man including quality of governance, routing out corruption and black money, cleanliness and digitization. In this bargain, industries were losers as their wish-list remain unfulfilled. However, this has effectively shirked off the "suit boot ki Sarkar" tag and the Government is steadily managing a shift in their support base with the electorate.

In a way, this Budget has been epoch-making on account of advancing the budget date, subsuming railway budget with union budget and elimination of plan and non-plan classification of expenditure. There is a remarkable shift in the Government tax policy of raising revenue by increasing tax rates to expanding tax base and improving compliance. That explains an 8.8% increase in indirect tax revenue and 15.3% increase in direct tax revenue in the budget estimates without significant increase in tax rates.

As expected, with GST roll-out in another four months, there were no changes in the peak rate of excise, customs and service tax, which reinforces the Government's commitment to implement GST by July 2017.

The Budget laid emphasis on digitization of tax administration, use of IT systems to reduce human intervention and e-assessment ensuring transparency and timeliness. Emphasis was also laid on "honoring the honest tax payer" (read "salaried class") by reducing tax rates.

The repeal of R&D Cess, a non-creditable levy, could provide impetus to import of technology. However, continuation of other cesses like customs cess, automobile cess, clean energy cess and infrastructure cess raises a question as to whether they will continue under GST.

In a nutshell, the policies spelt out in the budget if implemented in the true sense will significantly improve and increase tax compliance and accelerate economic growth.


The author is Partner and Head, Indirect Tax at KPMG India. Views expressed are personal.