Budget should give boost to downstream chemical industry: Shilip Kumar

Cutting down the corporate tax rates drastically will enable the government to create an environment which will facilitate smooth functioning and growth of businesses. In all probability such a move will help boost job creation and drive investments to the country. 

Give further thrust to ‘Make in India’ program

Make in India is a laudable initiative, which has generated much interest amongst the domestic as well as global investors. There is an urgent need to prop up demand to impart momentum to the capex cycle and put GDP on a high growth track. In April 2016, global ratings agency, Moody's said that net foreign direct investment (FDI) inflows have hit an all-time high in early 2016, highlighting how Make in India initiative of the government is bearing fruits. Establishment of industrial corridors, investment and manufacturing zones, and 'smart cities' will further bolster investment inflows.

Rollout GST by June 2017

India has been dealing with numerous indirect taxes for many years now. Considered as one of the most needed tax reforms, the Goods and Services Tax (GST) will change the country’s taxation regime for good. GST will enhance the ease of doing business in India, provide greater transparency and empower supply chains to be integrated. We hope that this year’s budget focuses on the implementation of GST by June 2017, so that the Indian industries are able to consolidate their business under the new tax platform.

Export benefits & lower custom duty provisions 

To improve competitiveness of Indian industries, the Government should consider increasing the export benefits such as duty drawback and MEIS Scheme. Likewise, with an aim to promote growth of the downstream chemical industry products, basic customs duty on adipic acid, toluene di isocyanate (TDI), MDI and iso phthallic acid should be reduced from 7.5 percent to 5 percent. 

Tax benefits on mandatory CSR spending 

The enactment of the Companies Act, 2013 has made India the forerunner to mandate 2 percent spend of a company’s three-year average net profit on Corporate Social Responsibility (CSR) activities. However, there is no tax benefit on this mandatory CSR spend. Corporate India has constantly recommended that the government should take into consideration provisions of Explanation 2 to sub-section (1) to Section 37. The provisions should be amended to allow CSR expenditure in computing taxable income. Necessary measures should be integrated to avoid misuse of CSR spendings. 

Restore weighted reduction on R&D expenditure

The erstwhile weighted deduction of 200 percent on R&D expenditure including operating expenses (salaries of technical and scientific staff, materials consumed, maintenance of equipment, utility bills and other relevant infrastructure costs) should be restored to drive R&D and innovation in the country. Moreover, the government should consider extending the said weighted deduction for aforesaid costs even if they are incurred for a R&D center set up under cost sharing arrangement or innovation center engaged in contract R&D. The rationale for this is that the primary objectives of generating employment and stimulating economic growth would still be achieved under these R&D structures.   

Reduction in rates of dividend distribution tax

Consistent with the reduction of rates of tax, the rate of dividend distribution tax (DDT) may also be reduced suitably. For companies, the expectation is to witness simplification of dividend distribution tax which is triple taxation (corporate income tax, then dividend distribution tax and then tax on the dividends in the hands of recipients). This tax also impacts the return on investments, especially for foreign investors. In addition to reduction of tax rates, single taxation at a uniform rate would be crucial to get more investments in the Indian economy.
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Shilip Kumar is the country president of Henkel India