While there are unlikely to be any major changes in indirect tax as most of them are now under the purview of the Goods and Services Tax Council, Budget 2018 could have several positive changes on the direct tax side, according to analysts.
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However, the key consideration while reducing direct taxes, either for individuals or corporates, would be to ensure that the changes don’t reduce government revenue too much, as there is already the possibility of overshooting the fiscal deficit target.
“One of the things I have been reading is that the Budget could introduce a standard deduction for salary payers,” Parizad Sirwalla, Partner and Head, Global Mobility Services – Tax, at KPMG told
‘Archaic limit’
“The other thing that could change is the medical reimbursement limit of ₹15,000, which is an archaic limit. So that could go up. The last thing is that the income tax slabs could be tweaked.”
Ms. Sirwalla echoed Chief Economic Adviser Arvind Subramanian, who in an interview to The Hindu , made it clear that changing the income tax slabs to reduce the tax burden on the salaried and middle class was one of the government’s key focus areas. “I think the fact that we have set up this committee and the government has invested a fair amount of thought into this for the future is something that shows it is an important subject, and the government is going to be thinking about it constantly,” Mr. Subramanian said.
Ms. Sirwalla also said there is a chance the government may introduce a long term capital gains tax on equity shares, or may remove the dividend distribution tax.
There could be some changes on the corporate tax front as well, according to analysts, but they added that the government will be careful with these in order to minimise the impact on the exchequer.
The GST has subsumed most of the indirect taxes, and so there are very few avenues for changes.
“On indirect tax, there is hardly anything the Budget can do,” D.K. Srivastava, Chief Policy Advisor at EY India said. “I think the Budget will contain numbers for the old indirect taxes that existed up to June 30, 2017.”
Against the backdrop of consistently rising oil prices, there has been an increasing demand for a cut in the excise duty on fuel. However, indications from both the government and the private sector suggest that this will not happen in this Budget.
“Most of the petroleum taxes are specific in nature, and because there are problems with revenue buoyancy, they might not cut the excise duty on fuel,” Mr. Srivastava said.
Mr. Subramanian, had also said a cut in excise duties would be unlikely as they would go against the very spirit of the deregulation of fuel prices.
“The whole point is that you pass it on, and the consumer bears the ups and downs, within limits, of course,” he said. “You don’t want to respond to every little change in oil prices.”
Prime Minister Narendra Modi, in a recent interview to a few TV channels, also indicated some key areas that he felt required more attention, a strong indication of what the Budget could contain.
“I believe that our first priority is to find out a solution for our farmers who are in distress,” Mr. Modi had said, perhaps indicating that the Budget could have measures to ease the plight of farmers, and boost agriculture.
“This is my personal belief that ease of doing business is very good but in a country like India, the ultimate goal should be ease of living,” Mr. Modi had added. “That is why my focus is more on ending the struggles of the common man who has to fight the system.”
He went on to highlight programmes like the Pradhan Mantri Ujjwala Yojana that provides LPG connections to rural women, and the Saubhagya Scheme aimed at providing last-mile connectivity for rural electrification, in a sign that the Budget could increase allocations to such programmes.
Overall, however, the Prime Minister said he was not in favour of a populist Budget, something both Mr. Subramanian and Niti Aayog Vice Chairman Rajiv Kumar have reiterated.
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