Budget 2022: Tax initiatives govt should take to spur growth

One nation one tax in a complex federal country was a distant dream for most. But it happened, making India's large economy easily accessible to all. It was true democratisation of businesses to foster business thinking and not get drained by tax considerations.  

GST is undoubtedly one of the biggest tax reforms in the country. It was initiated around 2016-17 and given the magnitude of the initiative, it is continuing in terms of improvements in the various facets of its implementation as the government learns from experience. 

The major advantages of GST are that it has reduced compliance costs on the elimination of multiple indirect taxes -  simplified indirect taxation since it is a unified tax on both goods and services, reduced physical interface between taxpayers and tax administration, made tax evasion difficult because it is IT-driven in nature which helps in maintaining checks and balances, and substantially reduced the cascading effect of taxes. 

Also Read: Budget 2022: Is the new tax regime appealing enough?

Despite there being two schools of thought as to whether tax regimes can make investment destinations competitive, tax as a tool to attract investment is still used worldwide. India also joined the destination of being a tax-competitive jurisdiction to attract investments.  

Reducing base corporate income-tax rate to 15% for new manufacturing companies and 22% for other companies, coupled with the elimination of a plethora of exemptions and initiatives have been important milestones in the pathway of rationalisation and simplification of corporate income tax, which has also improved the 'certainty' aspect, long lost in the Indian income-tax framework. Certainty is one of the major parameters that investors look for. 

Having made its mark in software services, it is now time for India to make a big dent in the global market in another service area. Financial services clearly need special attention. 

The establishment of the International Financial Services Centre (IFSC) under the IFSC Authority set up under a specific statute has been a major initiative. IFSC Authority is a unified authority for the development and regulation of financial products,  services and institutions in the IFSC in India. 

At present, the GIFT IFSC is the maiden international financial services centre in India. Units in IFSC enjoy nil income tax for 10 years, reduced MAT/AMT, exemption from capital gain tax, exemption from GST on input services and other benefits. 

Expectedly, these will go a long way in upholding India as a financial centre of excellence located between London in the west and Hong Kong in the east. Major banks, aircraft leasing companies and international funds have already shown interest in setting up shops in the GIFT IFSC. 

Also Read: Budget 2022: Liberalised tax regime and more, here's fintech sector's wishlist

Leveraging technology helps the approach guiding the present dispensation 'minimum government - maximum governance'. Using technology is an important measure through which major changes can be brought about.  

One area in the tax system that is too extensive and burdensome on businesses is the TDS-TCS regime, eliminating multiple reporting requirements since data once uploaded into technology-driven systems is available with the Government for all purposes. 

As such the TDS-TCS burden of compliances on businesses should be done away with, except for a few provisions that help in the collection of about 80% of taxes.  

Tax certainty is still a cry for many businesses. India has followed a multichannel approach to provide tax certainty to businesses and investors through rulings and advance pricing agreements. 

It is important that these institutions have adequate capacity to handle the workload to expeditiously close the matters in hand. Building such a capacity would help reduce new litigation.  

On an overall basis, India today presents a reasonable competitive tax regime. However, better implementation of a few measures shall yield better results as businesses would be able to timely benefit from a good policy.

(The author is Partner and Markets Leader, PwC India.)