The Hon'ble Finance Minister announced the Union Budget proposals for the financial year 2017-18 on 1st of February 2017 which was more focused towards welfare and growth schemes in rural areas, empowering youth through education, prudent fiscal management, improved public service and digitizing the economy.
There is a visible effort on behalf of the Government to boost the agriculture sector by launching Long Term Irrigation Fund, Micro Irrigation Fund under NABARD, expansion in the coverage of Natural Agricultural Market, Fasal Bima Yojana to name a few.
As part of welfare of overall population it was announced that the Government is inclined to bring more than 1 crore households out of poverty by attempting to increase their livelihood. This announcement clubbed with the extension of 60 days' interest waiver benefit to farmers would bring some positivity in the consumer business sector and hope for consumption boost as such households will now be able to spend more on consumer products to meet their basic necessities.
The MSME (including start-ups) tier of the economy has been witnessing lot of traction on the consumer business front whereby there is an increasing participation in the textile, fashion, retail, footwear, household and electronic appliances sectors. The 5% tax rate reduction incentive for the MSMEs should act as a catalyst to surge the bottom lines and as a result better valuation of these companies. Likewise, the proposed reduction in the presumptive tax rate for MSMEs having a turnover/ gross receipts (received from specified modes) of up to INR 2 crores to 6% shall have a positive impact on all the nascent and growing consumer goods oriented businesses. Further, the proposed exception proposed to an eligible start-up entity to carry forward of losses despite change in shareholding by more than 51% if the promoters continue to remain in the business, would to some extent address the challenges faced by start-ups exploring investors for future growth.
Additionally, the reduction of tax rate from 10% to 5% for 2.5 lakh to 5 lakh bracket will create additional disposable income of Rs12, 500 per annum in the hands of individuals. which is likely to be spent on consumer goods leading to a prospective increase in the top line of consumer business players.
Even on the transfer pricing front, relief from compliance and possible litigations have been offered by way of limited applicability of domestic transfer pricing regulations. As the same is now restricted to transactions with companies claiming profit linked tax deductions. Though it is pertinent to note that they would still need to comply with the Companies Act which requires related party transactions to be at arm's length.
However, from transfer pricing perspective, there is one cause of concern. Section 92CE has been introduced, whereby secondary adjustments can now be made to the quantum of transfer pricing adjustment that have been accepted by the taxpayer. The way this will work is, that the difference between the arm's length price and the value of international transaction would now be treated as advances given to associate enterprises, and notional interest would now be charged on such difference, probably upto perpetuity or till such time
the differential amount is bought into India. This is especially a worry area for multinationals that procures from of centralized hubs and are facing transfer pricing adjustments on the price paid for such procurement.
In addition to all of the above, special focus was also given to the ancillary sectors like logistics, dairy, warehousing, irrigation, packaging and tourism. In light of these steps taken by the present Government in reviving the economy, the Union Budget proposals can be would be seen as focusing on the consumer sector. These are the welcome moves and would lead to the growth and development of consumer business sector.
written by Anil Talreja - Partner; Bhupendra Kothari - Director; and Pushkar Khire - Senior Manager with Deloitte Haskins and Sells LLP