Agriculture development key theme from Budget 2018

Agriculture development a key theme from Budget 2018

5:09 AM, 6th February 2018
Agriculture development a key theme from Budget 2018
The new budget mainly focuses on agriculture. (File photo)

Arun Jaitley, Union Minister for Finance, Government of India presented the Union Budget for 2018-19, on 1 February, which won broad approval from economists.

The new budget mainly focuses on agriculture and food processing sector, affordable housing sector, health insurance industry and the textile sector.

The government is committed towards doubling the farmers’ income by 2022. The agriculture sector in India is likely to perform better in the next few years. Thus, the demand for fertilisers, crop protection chemicals, irrigation equipment will increase. The focus will be on technology, modernisation, warehousing and logistics industry will also get benefitted. Financing for these sectors will increase.

As the housing sector will continue to grow in the coming years. There will a growth in small budget houses in tier 1 cities, and growth in housing in tier 2 and 3 cities. Thus, the related industries - steel, iron, cement, construction materials, and transportation, will witness growth.

Healthcare is one of the major announcements of the budget. The government projects many schemes that promise health cover to 10 crore families. In contrast, there will be a boost in pharmaceutical/ health sector in general. Overall healthcare expenditure will get a boost.

In addition, the government has aimed an amount of Rupees 7148 crore for the textile sector in 2018-19. This will give much-needed motivation to the apparel and fabric sector in the country. The textile industries are split with a lot of small/ medium enterprises (SMEs), and growth has been volatile in the last three years due to weakening of rupee, GST and demonetization.

This statement is likely to stabilize the SMEs in this industry and lead to employment opportunities. Demand for yarn and filaments will rise. India is a net exporter of apparels and this will give a further boost to this industry. Also, suppliers of printing inks, dyes, and pigments will benefit from this initiative.

Chemical Industry Wishlist

Bucket full of wish list. Assurances of good performance, Nail biting anticipation on the presents. No. Santa’s not coming with his sack at the fag end of winter, but the Finance Minister sure is coming with his briefcase !!! It’s Budget season and every industry is high on anticipation on what they are going to gain or lose when the sack opens. Here are some of the expectations that the chemical industry has this time.

Shilip Kumar President, Henkel – India

The past few years have been a mixed bag and the country is now looking toward the new year with renewed optimism. Everyone is keen to know the direction that India will take on the 1st of February 2018. As a part of Corporate India, Henkel India hopes that some of the expectations we have will be addressed by the Union Finance Minister of India, Mr. Arun Jaitley. Overall, we expect Budget 2018 to consolidate gains from the various structural reforms (such as GST, demonetization etc.) implemented outside the Budget which have helped it formalize the economy.

Tax policy is a key element of our nation’s economic reform agenda, and can be effectively leveraged to spur consumption, growth and investor sentiment. Accordingly, some of our expectations (related to direct and indirect taxes) from the Union Budget 2018-19 include:

Reduction of Corporate Tax rate to 25%, as committed by the Finance Minister in 2015 budget

Topping the budget wish list of India Inc. is the request to reduce corporate tax by at least 5%. In his 2015 budget speech, Mr Jaitley announced a reduction in corporate tax rates from 30% to 25% with corresponding withdrawal of exemptions over 4 next years, which is a welcome approach.

Cutting down the corporate tax rates drastically will enable the government to create an environment which will facilitate smooth functioning and growth of businesses. In all probability such a move will help boost job creation and drive investments to the country.

Tax Benefits on Mandatory CSR Spending

The enactment of the Companies Act, 2013 has made India the forerunner to mandate 2% spend of a company’s three-year average net profit on Corporate Social Responsibility (CSR) activities.  However, there is no tax benefit on this mandatory CSR spend. Corporate India has constantly recommended that the government should take into consideration provisions of Explanation 2 to sub-section (1) to Section 37. The provisions should be amended to allow CSR expenditure in computing taxable income. Necessary measures should be integrated to avoid misuse of CSR spending.

Inclusion of Goodwill under Tangible Assets

Clarificatory amendment should be brought for specific inclusion of Goodwill in the definition of block of intangible assets.

Reduction in rates of Dividend Distribution Tax (DDT)

Consistent with the reduction of rates of tax, the rate of Dividend Distribution Tax (DDT) may also be reduced suitably. For companies, the expectation is to witness simplification of dividend distribution tax which is triple taxation (corporate income tax, then dividend distribution tax and then tax on the dividends in the hands of recipients). This tax also impacts the return on investments, especially for foreign investors. In addition to reduction of tax rates, single taxation at a uniform rate would be crucial for the Indian economy to attract more investments.

Tax Benefits on R&D expenditure

To create an innovation ecosystem the Government of India has set up the Atal Innovation Mission (AIM), along with the Self Employment and Talent Utilisation (SETU) scheme administered by Niti Aayog. These programs are meant to facilitate school-level financial grants that help in nurturing the first layer of innovation. However, at the corporate level, there is a need for specific tax benefits to be provided to units engaged in the business of contract R&D to foster the growth of the R&D segment and to turn India into a R&D hub / research powerhouse.

Bringing Goods and Services Tax (GST) rates to three in line with international standards

India has been dealing with numerous indirect taxes for many years now and GST was considered as the most needed tax reform. However, there is a need to converge the existing band of GST rates to three in line with international standards. Further, to make the GST reform truly effective, all sectors including electricity, oil & gas, real estate, tobacco and alcohol should be within the ambit of GST.

GST: Clarity and Improvements

  • The government should define and institute a clear and simple framework for claiming Input Tax Credit (ITC) in the GST regime. Accordingly, restrictions on claim of input tax credit needs to be removed.
  • Quick refund of IGST paid on exports is recommended.
  • The anti-profiteering clause of GST law should provide clarity on rules and regulations regarding assessment of valuation and impact of taxes.
  • Processes related to GST compliances must be reduced so that business can operate efficiently. Filing of 37 returns per GSTIN is a time-consuming exercise. Thus, it should be simplified.
  • Technological glitches of the GST network should be resolved on a war footing.
  • The matching concept of input credits requires large volume of data of the supplier to be matched with that of the receiver. This process should be simplified, wherein only broad main criteria may require matching like the invoice value and the tax amount
  • Further, there is also no provision to amend GST Returns once uploaded. Thus, in case some clerical error is found later, it cannot be amended. Provision should urgently be made to allow rectification of returns.

Amendment to the Special Valuation Branch (“SVB”) Law

Suitable amendment should be made in law to provide for time-bound SVB proceedings rather than outlining it under a Circular.

Promoting downstream chemical industry products

Basic customs duty on Adipic Acid, Toluene DI Isocyanate (TDI), Desmoure 2460M (MDI) and Iso Phthalic acid should be reduced from 7.5% to 5% to promote growth of downstream chemical industry products.

Ajay Durrani, Managing Director, Covestro India

The last budget of the current tenure of the government is expected to be a mix of populist and pragmatic measures. The agro-based industries are expected to receive major stimulus with the government’s emphasis on increasing the farmers’ income. However, the government also needs to support cold chain segment that merits incentives as it would be critical in strengthening the food security initiatives as well as ensure better realization to farmer community.

The rural infrastructure will also be at the centre of focus and will see an uptick in the budget allocation. However, urban housing is another acute challenge that merits creation of an ecosystem that is based on private-public-partnership model. In the interest of making India an energy saving country, there should also be incentives for building insulation materials, LEDs and solar powered dryers. The mission of building an energy efficient India warrants strong emphasis on initiatives such as UJALA scheme.

At the same time, incentivizing adoption of insulation technology in construction along with removal of anti-dumping duties on inputs and technology that supports creation of energy efficient buildings and products should find place in the budget. Income tax reforms – especially change in the income tax slabs and rates – that widens the base of tax payers could be a move that might ring well with the people.

Meanwhile, initiatives concerning electric vehicles and those reducing the carbon footprint of the country might find renewed support from in the form of tax sops and probability of a clean energy cess. In order to push the adoption of automobiles running on cleaner fuels, the government may also pull the plug on vehicles older than 10-15 years. It would be an encouraging step if the Finance Minister also incentivizes use of EVs by further reducing taxes on the allied technology and inputs that support the ecosystem, including lower interest rates on loans, and electricity tariffs for fleet operators. 

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