Union Budget 2022: Reaffirmation of tax stability, inclusive growth

The Finance Minister hit the right chord by presenting a Budget that focuses on growth for tomorrow’s India. It nudges the economy into an ‘Amrit Kaal’, through the three pillars of inclusiveness, public investments, and digitisation.

The Budget carries forward the government’s focus on structural reforms, digitization and sustainability while introducing notable additions. Digitization has been a consistent theme in the last few years with the launch of platforms like UPI, Aadhar, Co-Win and now the upcoming Open Network for Digital Commerce (ONDC).

Progressive announcements on tele-mental health, setting up of the DESH-Stack e-portal to skill, reskill or upskill citizens, introduction of the Blockchain-powered digital rupee by FY22-23, Digital Banking Units to further push digital payments, end-to-end e-Bill System for central government procurements and other such steps are strong initiatives. These will bring the ‘Digital India’ alive, fundamentally transforming the business-to-business, business-to-government and business-to-consumer interactions.

The Government is looking to establish GIFT IFSC’s own unique space amongst the leading financial hubs. The setup of International Arbitration Centre will ensu­re resolution on financial and contractual matters basis international jurisprudence. The proposal to make GIFT IFSC the hub for raising capital for sustainable/ climate finance is also welcome, as more corporates raise funds for the ESG agenda. The incentives available under the GIFT regime should make it conducive for listing of Green Bonds, setting up of funds focussed on investing in sustainability driven projects etc.

Mature IFSCs will need access to quality pool of talent who can adapt to the complex financial services and business environment. Hence this proposal should give a fillip in ensuring pedigreed talent availability for Global Capability Centres set up in GIFT IFSC.

Among the tax proposals, the move to cap the surcharge on long term capital gains (LTCG) arising on transfer of any type of assets at 15 per cent, as against up to 37 per cent earlier, is welcome. It is effectively a reduction by about 2 per cent to 4.5 per cent. It will give a boost to the start-up community and other taxpayers in respect of assets like unlisted shares and real estate property. It may encourage taxpayers to defer their transactions to the next financial year to avail the beneficial tax provisions. However, the surcharge on short term capital gains (STCG) remains untouched, which means that the delta between LTCG tax and STCG tax increases.

While the FM has announced the extension of sunset of tax holiday for start-ups till 31 March 2023, more could have been done. The benefit of tax payment deferral on ESOPs is presently available only to a limited number of start-up employees. This could have been extended to a larger set.

The Budget has extended the deadline for setting up new manufacturing companies to avail the benefit of lower tax rate of 17 per cent from March 31, 2023 to March 31, 2024. This effectively creates a tax differential of 7-8 per cent for new companies. This will provide a big relief to companies apprehensive about not meeting the deadline. It will incentivise those on the fence to come and add capacities through new investments.

For improved litigation management, the repetitive appeals on common issues shall now be avoided till such issues are finally decided by the courts, saving time and effort for both taxpayers and the Department.

The department has also tightened its compliance measures. Penalties for default in furnishing of TDS/ TCS and other statements have been enhanced five times. There seems to be a cautious acceptance of the crypto assets as the Budget lays down stiff tax norms for virtual digital assets. The Department has taken the power to provide exclusions from this tax framework, which may be used for the Digital Rupee.

The Budget provides a vision for next 25 years and lays a strong foundation for an inclusive and forward-looking India with trust and transparency as the guiding light. It’s time now to focus on full-throttle execution of reforms.

The writer is chairman and CEO, EY India