Union Budget 2022-23: Budget 2022 will be interesting to watch because the government now has a fair experience dealing with COVID-economy and will be guided by its learning over the past two years
Indian Union Budget 2022: Manufacturing needs a boost now. Image courtesy Wikimedia Commons
The countdown to Budget 2022-23 has begun at a time when the country has been hit by the third wave of COVID-19. Add to that, some of the key States are going to the polls as well. To grapple with the situation, it is expected that the finance minister shall announce tax holidays and exemptions, which essentially aim at reducing import dependence and increasing domestic production as well as services.
In these unprecedented times, it is important that in addition to the historical methods of granting reliefs to taxpayers and the industry, certain pathbreaking measures are taken which will provide much-needed sustenance to the economy.
The past few Budgets have introduced certain sector-specific production linked incentive (PLI) schemes, which hold the promise of creating employment opportunities and are expected to put India on the global manufacturing map. However, these growth enabler schemes, which were first introduced in March 2020, only covered 13 sectors. The sectors covered include steel, telecom, automobile, etc.
The PLI schemes that are expected to boost India’s exports while reducing reliance on imports of heavily used items in India are steadily being recognized as a success. Therefore, the schemes are frontrunners in so far as long-term solutions for the pandemic hit industry is concerned. The fact that the scheme extends the benefit to integrated as well downstream manufacturers creates a sustainable manufacturing ecosystem and is attractive to investors.
Given the way the economy has reacted to these schemes, it is expected that these schemes will be extended to other sectors especially where the reliance on imports is high, as well as to certain service sectors such as hospitality and tourism.
While extending the ambit of these schemes, certain changes may be considered which may further benefit the industry and the economy. Given that each sector works on a pre-designated financial incentive limit, there are certain challenges that are associated with the same – companies have to compete against each other to apply for this benefit and secondly, no additional benefits are given to a company that is overachieving its targets and therefore, such companies are not incentivized to exceed their projections.
Oil and gas reeling under pressure of tax regime
On the sectoral front, one sector that is reeling under the pressure of the domestic tax regime is the oil and gas sector. The sector is currently plagued with a multitude of taxes and tax regimes. Time and again requests are made to rid the industry of the multiple taxes that are currently applicable and the inclusion of the sector under GST laws. The sector expects a rate reduction till a decision is taken on its inclusion under GST. This is critical as oil and gas is a raw material for several sectors and the industry has to face the cascading effect of taxes.
Tax cryptos to arrest revenue leakage
Another area that is fast becoming a pain for the taxman is cryptocurrencies. Lack of clear guidance on how to tax cryptos has led to revenue leakage as well as investigations from the taxman. The government will do well to bring in some clarity so that revenue can be maximized from this ever-growing sector.
Additionally, it is expected that a simplified customs duty rate is put in place for goods, which provides for a lower rate of import duties on intermediates and critical telecom equipment. These rate changes will go a long way in providing much-needed support to the industry.
It is also expected that with an intent to provide the industry with an opportunity to settle its historical litigations and increase tax collection for the government, a scheme such as the erstwhile ‘Vivad se Vishwas’ is introduced for all indirect taxes, especially customs.
This years’ Budget will be interesting to watch because the government now has a fair experience dealing with COVID-economy and will be guided by its learning over the past two years. The industry hopes that the government walks its talk and provides the support required to sail through the difficult times.
Rajat Bose is Partner, Ankita Bhasin, Counsel – Shardul Amarchand Mangaldas & Co.
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