Budget reflects BJP’s election manifesto priorities
The consensus expectation was that this budget would be different
Expectations have a tendency of running away ahead of every budget exercise, but these had reached unprecedented levels in the run up to finance minister Arun Jaitley’s Budget 2014. Would it be a Budget replete with announcements of big bang reforms? Or would it stay away from such announcements at this stage but set out the government’s fiscal priorities and define a roadmap for addressing these priorities?
Regardless of the tack that the he chose to adopt, the consensus expectation was that this budget would be different. In the overall analysis, if Budget 2014 has to be different, it will lie largely in the rigour, focus and effectiveness of the overall implementation effort.
Budget 2014 reflects a number of priorities identified in the Bharatiya Janata Party’s election manifesto—the need to simply the taxation regime, provide a non-adversarial tax environment and revamped dispute resolution mechanisms. Building consensus with state governments to introduce the Goods and Services Tax expeditiously was another priority.
Budget 2014 takes a number of steps to mitigate tax disputes. A mechanism of advance rulings, which is only available to non-resident taxpayers (and public sector undertakings), is now proposed to be extended to cover all other resident taxpayers as well. Practical experience suggests that it takes considerable time to obtain rulings from the ruling authority; further burdening the ruling authority would enhance concerns about the efficacy of the forum. The finance minister acknowledges this and has proposed to augment the capacity of the ruling authority. Disputes emanating from the transfer pricing domain are sought to be pre-empted through a number of amendments to the law that have been proposed. The scope of the Settlement Commission is proposed to be redefined to make it a potentially more effective dispute resolution forum. Details in this regard are to be released in the current session of Parliament.
A high level committee, which will interact on a regular basis with industry and issue clarifications on a current basis on direct and indirect tax issues, is proposed to be constituted.
The finance minister reiterated the the government’s intent to provide a non-adversarial and business friendly tax environment. A widely anticipated move that would have signalled this intent was the abolition of the retrospective “Vodafone" amendment. There has been disappointment on this score for a number of reasons. While the finance minister stressed that the government would consider retrospective amendments only in exceptional circumstances, it did not repeal the retroactivity of the Vodafone amendment. It has proposed that a Central Board of Direct Taxes constituted committee will review any new cases to which these retrospective provisions may apply, although the mandate of such a committee is not clear presently thereby perpetuating uncertainty that envelops such transactions.
Finally, a government appointed committee had made a number of recommendations with regard to how these provisions should operate; these clarifications do not feature in Budget 2014. Accordingly, and at least in this area, greater clarity and certainty remain elusive.
On GST, he expressed determination in resolving differences with the state governments before the end of the year paving the way for GST to be legislated. There was hope of a more clear timetable but industry must for now remain content with the finance minister’s statement of intent.
The financial services sector and the capital markets received focus. A taxation framework for real estate and infrastructure investment trusts has been proposed. He reiterated the commitment to implement the recommendations of the Financial Sector Legislative Reforms Commission and also indicated that the government would implement a number of recommendations made by the Sahoo Committee to permit greater flexibility in the market for American depository receipts, Global depository receipts and Indian depository receipts.
The budget’s revenue arithmetic appears to be predicated on an uptick in economic activity. This government’s ascension to power is based on its commitment to act, to execute, to deliver. Budget 2014 is the first significant policy announcement against which the government’s commitment will be measured and tested; if it delivers, “acche din" will arrive!
Bobby Parikh is chief mentor and partner, BMR & Associates LLP.
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