The Finance Minister has presented her 4th Budget in the backdrop of factors including the 3rd wave of COVID 19 and significant buoyancy in tax collections during the year 2021-2022.
In 2021, the FM has presented, what she called was a 'once-in-a century budget' to revive the economy via investing in infrastructure and healthcare while relying on an aggressive privatization strategy and robust tax collection. This year too, the FM has stuck to the elements of her last budget, i.e. aggressive capital expenditure and push for digitalization. Robust tax collections have provided headroom to improve the outlay on the capital expenditure.
In the last couple of years the Government has been rationalizing the rates of corporate tax, slashing them to 15% for new manufacturing entities, and 22% for all corporates. These rates are now amongst the lowest across the globe. In doing so, the Government took an important step forward to attract investment and incentivize manufacturing in India. However, India has suffered a relatively poor reputation when it comes to the stability of its tax regime. By not tinkering with tax rates this year- whether corporate tax, personal income tax, peak rates of Customs duty or GST, the Government has sent out a strong signal to the investors that India is indeed a stable and predictable tax regime where they should be looking to invest.
On the Customs front the rate changes proposed are purely to incentivize the growth of domestic manufacturing in sectors such as electronics, chemicals, capital equipment, etc. given the stiff competition faced by these manufacturers from imports into India. This increase in tariffs is now a global trend, aimed at reducing imports to nurture the development of local industries. Various simplification measures are also proposed in the Customs Tariff such as elimination of various exemption entries and amendment to Customs duty rate in the First Schedule to the Tariff itself.
Some legislative changes are proposed to amend the Customs Act, notably, the Proposal to make DRI as a proper officer to issue and adjudicate show cause notices. This amendment was anticipated as massive revenue of the Government was at stake. Advance Ruling issued under the Customs Act, have now been provided validity of 3 years, unless there is any change in law or facts prior to that date.
On the Direct tax front, caping of surcharge at 15% for long term capital gain, extension of period by 1 year for incentives for startups and newly incorporated entities are a welcome move. While there was a huge expectation , the budget did not provide any proposals to change any income tax slab for individuals to address the new way of functioning adopting work from home and providing higher disposable income in the hands of individuals.
Falling consumption levels, stiff market conditions and rising inflation levels have brought tough times for SME sectors. To this end, the FM has announced various proposals to support the SME Sector including extending the ECLGE Scheme, increase in the Customs duty for certain imports to improve the competitiveness for domestic SMEs.
Various proposals aim at focusing on digitalization and promotion of EV Segment. Customs Notifications have also been amended to provide clarity on concessional rate of Customs duty for import of EVs. In addition to this, Battery Swapping Scheme and Infrastructure status are other important amendments to promote EV in India.
With the Atmanirbhar Bharat mission, India is charting its journey to becoming self-reliant in the manufacturing of various goods and services. In this regard, more manufacturing sectors have now been proposed to be included under Production Linked Incentive schemes, 65% of defense capex is now reserved for domestic industry and there is a significant outlay is proposed on infrastructure under the PM Gati Shakti program, etc. This should significantly help PM's flagship program under the Atmanirbhar Bharat mission.
Union Budget 2022, has rightfully struck the balance of need of job creation and maintaining vibrancy in the economy. These should ultimately boost the confidence of people of our country. Overall, India's long –running objective of predictable and stable tax regime has been achieved.
Originally published by Business Today.
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