CY 2022 has shown that the Indian economy is on a clear path towards recovery, though it is perceived differently. The people of India feel the pressure on many fronts, such as loss of employment through layoffs, underemployment without promotions and pay-cuts, MSMEs squeezed due to lack of working capital, and supply-chain issues. On the other hand, all government indicators point to a positive outlook, including higher-than-expected tax collection, increased manufacturing through the PLI Scheme, and a positive outlook for the economy's future.
The budget for 2023, according to EZTax, will set the tone for greater, more visible infrastructure development, as well as a refocus on self-reliance through the PLI Scheme and other initiatives to combat the recessionary global environment. At the same time, help the middle class; people rely on agriculture (an influencing factor in the 2024 general elections).
Also, expected are encouraging tax structures for investments in startups that focus on defense, agriculture, and national building products and services. It is expected to have fiscal prudence measures such as a special vehicle to increase tax enforcement and collect more tax without imposing new taxes.
Expected to focus on Self-Reliance schemes to boost manufacturing and employment.
- Continued reforms towards "minimum government and maximum governance", possible to take bold reformative steps towards automation, privatisation of non-functional PSUs, and centralising government functions to reduce government expenses, and increase governance.
- This is expected to continue for the next two to three budgets due to the lack of market support and the issues around.
- Increase the local sourcing requirements for all the government and major public companies to reinvigorate the MSME business.
- Re-focus on 6.5 to 7 Crore MSMEs who are deeply affected by the COVID-19 pandemic, with some observation, around 25% of MSMEs are closing their businesses by un-attending their GST obligations, and around 10% are closing their GST accounts formally.
- MSMEs needs a massive boost even at the expense of ramifications from QE. Expected to increase Credit Flow to MSMEs through certain liberal means to re-start their business.
- Provide larger incentives for start-ups. who are providing employment and innovation for defense, agriculture, and national building products and services.
- Restructure the new tax regime to be more attractive and give IT relief to taxpayers for higher consumption. Also, reduce or adjust GST rates on basic commodities with an eye on the rural economy.
- GST Compliance: Avoid frequent changes to the process and systems. GST is not the problem for the economy; it's the demand. Enforce full GST, including the reverse-charge mechanism, for proper ITC.
- GST Compliance: Re-organise GST Slab Rates to promote employment along the lines of raw (lower GST Slab), processed (manufactured), heavily processed, and imported (higher GST Slab).
Theme of the Budget 2023 is expected to be Self-Reliance
- Income tax reforms and Budget 2023 should emphasise easing tax compliance and increasing the tax base in India.
- Increase the tax rebate under section 87A for a tax-free income of up to Rs. 6 lakh.
- Increase primary Income tax deduction for housing loan, in case of self-occupied property to Rs. 3L to promote housing and savings
- The cost of housing has increased substantially. Critical to promote employment in the housing sector.
- Encourage a small family of four (wife, husband, and up to two kids) to get a special rebate. Also introduce "family" as an IT return type to enable family filing with incentives. The concept and importance of family in our country should be reflected in IT compliance too.
- Enhance the new tax regime with more favourable tax slabs to pave the way for the sunset of the old tax regime and reduce compliance complexity. Set a date for the end of the old tax regime.
- Give the highest importance to "ease of doing business". No tax breaks are needed. It's bureaucracy that is killing innovation and entrepreneurship in India.
- Special Fund to Automate Company Compliance to Reduce Human Intervention Reduce the tax professional's involvement during the company's lifecycle for revenue up to Rs. 10 crore.
- Only bank-deposited (or digital) house rents should be allowed to be considered for HRA (under the old tax regime).
- Refine the definition of a capital asset; proceeds can be reinvested in any other capital asset while remaining taxed at a single rate. No short or long-term allowed. Remove STT.
Introduce the super-long term. Proceeds can be reinvested in any capital asset. Maintain three CG rates uniformly across all asset classes. Remove STT.
EASE OF DOING
- Ease of Starting Business: Most professional certifications should be eliminated for firms, LLPs, and private companies with less than Rs. 10 crore in annual revenue. At the same time, enforce strict compliance norms after Rs. 10 crore in annual revenue.
- Ease of Doing Business: Re-enable Aadhaar based eSigns and KYC for both IT and GST returns. This will enable ease of use and reduce fraud due to DSCs.
- Make a level playing field for small and medium-sized businesses to thrive while coexisting with the eCommerce eco-system.
- Root Cause of Loan defaults: Re-enforce standards in the asset valuation part of the lending industry. Link and enforce GST turnover in income tax filings immediately to reduce the inflated turnovers and bad loans.
- Cost of Money: Promote government-based payment and wallet services (Rupay and UPI) with zero MDR. Enforce the same across all payment gateways with immediate effect, as not all have implemented this yet (even after three years). Like paper currency, digital currency should not have transaction costs. Today, digital Rs. 100 is actually Rs. 97.5, as the 2.5% is the MDR (need to address it immediately).
- EZ Loans to SMEs: Enable a measure to give online EZ Loans based on GST turnover and sector-specific indicators. Create straight-through-process (STP) loan standards by eliminating non-material third-party balance sheet certifications.
- Cost of Credit: 1 year of interest-free, collateral-free credit for eligible MSMEs who have a proven record of credit history or against the collateral.
- As recommended as part of last year's pre-budget expectations, we propose the Institutional Industry Quotient (IIQ) for better innovation at scale in India that spurs growth.
- Build the institution-industry quotient (IIQ) for better synergy and innovation. Increased grants must be linked with IIQ. Promote entrepreneurship from the institution onwards.
- Transformations in the banking sector as a whole—re-enforcing asset valuation to reduce NPAs, privatising some banks, and redefining banks' roles as strategic rather than simply infrastructure—would generate significant capital for the government to invest in next-generation infrastructure.
- Increase the amount of domestic sourcing that is required for all the public sector spending to enhance the opportunity for domestic technology companies and start-ups to participate in automation.
In summary, while the overall economy is progressing and showing resilience and confidence, it is important to take care of the employment issue in the country. Frameworks and budget allocation should be reoriented toward achieving a higher employment outcome.
The untapped, low-hanging fruit for higher revenue to fund Budget 2023 is the tax collection "from the non-compliant." India is extremely low in tax compliance by any standard we look at. It's time to collect and reorient toward capital expenditure to promote "self-reliant" initiatives.