Union Budget 2022-23: Clarity on tax compliance needed, say experts

Finance Minister Nirmala Sitharaman should look at rationalising some tax provisions to ease the burden of compliance and regulation, experts said ahead of the Union Budget 2022-23, even as the expectation is that there won’t be any changes in the corporate or personal income tax rates.

On tax rates, the Centre believes any change could be counter-productive, given the continued uncertainty around Covid and its impact on household income and savings.

“We are definitely not expecting any big tax cuts on personal and corporate income tax. The expectation is for the Budget to rationalise some of the existing provisions. There is still a lot of headroom on ease of compliance and tax administration. From the industry, there is a demand to allow for deduction on corporate social responsibility (CSR) expenses, which is currently not there,” said Gouri Puri, tax partner at Shardul Amarchand Mangaldas.

The Central Board of Direct Taxes’ stance is that since CSR is not incurred for the purposes of carrying on business, such expenditure cannot be allowed as a deduction. However, many industry bodies have been asking for allowing deduction on CSR expenditure.

“Having a look at the regulatory and compliance burden from a tax perspective would be a good thing. Another concern is the high tax rates for high-net-worth individuals (HNIs) — the highest bracket is 42-45 percent. While it may sound justified and fair, we forget that sometimes people have the option of shifting their base. The flight of capital and HNIs to jurisdictions abroad is something the government must pay attention to,” said Neeu Ahuja, partner, Deloitte.

Nearly 5,000 millionaires, or 2 per cent of the HNIs in India, left the country in 2020 alone, according to the Global Wealth Migration Review report for 2021.

The last tweaks in the personal income tax rates came in the 2020-21 Union Budget, just before the pandemic. Sitharaman had announced reduced tax rates for those willing to forego certain exemptions and deductions. For the Rs 5-7.5 lakh annual income bracket, the rate was reduced to 10 per cent from 20 per cent.

The income tax rate was cut to 15 per cent, from 20 per cent for the Rs 7.5-10 lakh slab; to 20 per cent from 30 per cent for the Rs 10-12.5 lakh bracket; and to 25 per cent from 30 per cent for the Rs 12.5-15 lakh bracket. The top bracket, above Rs 15 lakh, remained unchanged at 30 per cent.

Various data points show that the economic recovery is still not as broad-based as policymakers would like and household incomes and are still stressed. The latest gross domestic product data (July-September) showed that private final consumption expenditure was still below pre-pandemic levels.

The FM usually presents the Budget on February 1.