Budget 2023 was the fifth consecutive budget presented by the current finance minister, Nirmala Sitharaman, joining the league of Manmohan Singh, Arun Jaitley and P Chidambaram. Over the past four budgets, we have seen everything – record-breaking marathon speeches, fiery statements, poetries, quotes from religious texts, and of course, devils in budget documents without any mention in the budget speech. However, this year was quite different. Firstly, the finance minister looked pretty relaxed. She seemed like ‘let me just warp this up and go home’ rather than ‘let me present the budget of the largest democracy in the world’. And then, there were no poetries, no aggression, no melodrama, no scolding of the opposition party leaders, and most importantly no controversial policy changes. We are not sure if it was Nirmala Sitharaman presenting the budget, or her alter ego. The budget speech sounded picture-perfect, but we knew, as usual, the devil will be in the budget documents. So we scanned through the budget documents – end to end – and to our surprise, we found nothing that would raise our eyebrows. Welcome to the election years – when you know you have to get their vote, you don’t do anything that people will note, or say something that the media will later quote!
Why did the Government provide corporate tax relief?
The mega election is due next year – although that’s not the only reason why the budget for 2023 was such a sweet tooth. The tax collections during the current financial year have beaten even the Government’s budgeted targets – actual collection exceeding the budgeted? – when was the last time you heard something like that? Well, it is expected that the tax collection would exceed the budget by a staggering INR 4 lakh crore and during the last 22 years, this has happened only on two occasions, as the Governments are fairly consistent in meeting their tax collection targets, irrespective of the regime. Then, the tax incentives were also long due, as the expectations around the same have been building up over the past 4-5 years as all the recent past budgets were barren when it came to providing incentives to the middle-class people. However, we feel there was one important reason why the Government provided tax relief that probably nobody is talking about – the new tax regime!
Budget proposals that we admire
- Promotion of GIFT IFSC – The government has made several changes to promote GIFT City – the international financial services centre in Gujarat, including the introduction of data embassies and acquisition financing.
- KYC-related proposals – Declaring PAN as a common business identifier has a deeper impact than it appears to. It would simplify the KYC process, however, it would take a lot of effort from the Government over multiple years. Meanwhile, the Government has made a fascinating move to introduce Entity DigiLocker, which is well-implemented, and will go long way in truly digitising various processes.
- Municipal bonds – Funding is the biggest impediment to local development projects in towns and cities. If municipal corporations become transparent and develop their creditworthiness, municipal bonds can become a reality. This would allow banks to project local projects and local bodies too will get the required funding, instead of simply relying on the State Governments. However, its success needs long-term continued oversight of the Government.
- Increasing capital expenditure – The government has given a huge boost to developing long-term infrastructure, meaning the taxpayers’ money is going to be converted into wealth and not expenses. Railway has received a huge budget, however, there is no mention of what it is going to do.
- Relaxations in customs duty – The customs duties which were increased during the past year have been reversed now on several items and therefore, would ease the prices.
- Taxing the investments of the ultra-rich – Last year it was a provident fund, this year it is insurance and deductions against capital gains. There are new thresholds for these tax saving options which deter the ultra-rich from saving on taxes
- Tax slabs under the new regime – The new tax regime now seems at par, or better placed in comparison to the old tax regime. Allowing standard deductions to salaried employees under both regimes will help salaried individuals to save taxes.
- Extension of startup benefits – Recognised startups can carry forward losses for 10 years now. The scheme has also been extended for one year.
- Increasing presumptive taxation threshold – This will allow more small taxpayers to exit the clutches of the tax department and liberate them from maintaining books and documents.
Budget proposals that we critize
- Strategic disinvestment – This was the biggest talking point during the past budgets. The government had announced mega sales of public assets. Many of these announcements haven’t seen any further action. There was no mention of the same in the economic survey, budget speech, or budget documents. Are these proposals shelved? Maybe the Government will talk about it only when the elections are done and dusted.
- Higher TCS on foreign remittances – This is going to hurt a lot of people, as all foreign remittances without any minimum threshold will attract TCS. Although this will boost reporting of remittances to the Government, the tax rate of 20 per cent is too high. It will unnecessarily block the funds of genuine taxpayers. This provision will also hurt people who invest directly in US stocks.
- Disallowing delayed payments to MSMEs – Firstly, this is going to be very difficult to evaluate in the case of private and small businesses. And then, it is going to result in huge disallowances for large corporates and also all classes of businesses. The provision was introduced to benefit the taxpayers, however, if strictly implemented, this would cause more havoc than benefit. Several industries have a longer credit period for payment and therefore, this tax provision is going to be an obstacle in well-settled practices.
- Unified filing process – Please don’t misunderstand here – the policy proposal is fantastic – a common portal to report the information, instead of reporting to multiple authorities. However, given the Government’s history of implementing the GST portal, Income Tax portal, and MCA portal and keeping all other Government websites, we are pretty sure this will be another mess that people (Chartered Accountants) will have to face.
- Energy-related proposals – The Government has declared support for Green hydrogen, renewable energy, energy storage, and energy transition, which would most probably be utilised to incentivise the corporates. Given the current fiasco, as apparent in the news, it seems either this amount is going into the wrong hands, or else the Government would end up delaying the projects.
- Unity Malls – Earlier Government had launched the ‘one district, one product’ scheme which hasn’t been much successful. To revive the same it is now building malls to promote the products. Seriously? “Government has no business to do business” This was the motto of the current Government and it is diverting from the same.
- Health and education – Ideally, these two should be the highest priority of the Government, however, after recovery from the pandemic, once again, these segments seem to have taken the back seat with no major announcements.
- Rural development – The policy names are much bigger and sound more vibrant than the projects themselves. Most of the schemes seem to be renamed versions of old and existing schemes and projects.
Taxation needs stability and policies need time to reap their benefits. This is the reason why we rated this year’s budget a higher rating. Although, we missed the zeal in the budget proposals this year, as it was mostly mild with no major announcements or improvements. From a policy point of view, the Government hasn’t made any ambitious announcements this year – it was mostly checking the boxes to ensure everybody is mentioned. Most probably the same is being saved for the post-election budget next year. From a tax perspective, the Chartered Accountants are really happy, as the finance minister hasn’t fiddled much with the tax laws this year, which means, savings in time, efforts and hassles. Overall, that’s our opinion.