What India Inc expects from Budget 2022
6 min read 25 Jan 2022, 05:08 PM ISTThe latest episode of Mint Navigating Compliance with Technology series, titled ‘Budget 2022 and what it brings for the start-up and manufacturing sectors’, powered by Clear, turns the focus on the needs of India Inc and solutions expected from the budget.
_1643109164711_1643109167973.png "The latest episode of Mint Navigating Compliance with Technology series.")
PremiumThe manufacturing and start-up sectors have emerged as key players in the growth of our economy. With the government firming up budget 2022, India Inc has a host of demands right from the simplification of GST compliances to offering incentives to the manufacturing sector, which was hit very badly during the pandemic. For start-ups that saw a massive inflow of FDIs with the IPO boom, there is a need to relook the taxation models for investors funding growth in unlisted companies.
The latest episode of Mint Navigating Compliance with Technology series, titled ‘Budget 2022 and what it brings for the start-up and manufacturing sectors’, powered by Clear, turned the focus on the needs of India Inc and solutions expected from the budget for both the manufacturing and start-up sectors, which are key to driving growth in the country.
There are murmurs that a higher outlay and capital expenditure and healthcare schemes aimed at boosting India's further inclusion in the global supply chain are likely in Budget 2022. These schemes are expected to be game-changers for the manufacturing landscape in India, as they offer a boost to employment and the schemes will have a cascading effect that will bring huge economic impact to the country.
“I think it will be a welcome addition to the budget to see additional Capex and added healthcare schemes. Healthcare is an extremely Capital intensive space. For a provider like a hospital, the amount of Capex that they really need to make to get up and running over the years further up the value chain and everyone from developers, to manufacturers and distributors has a heavy Capex bill at the end of the day. So any help brings a boost to the industry as a whole," said Rahul Cordeiro, Chief Financial Officer, Wipro Ge Healthcare Private Limited.
The spending on healthcare has gone from 1.2 percent of GDP to about 2.5 percent of GDP in the last budget. “COVID is turning things around for better or for worse. We realise now how much infrastructure we need to build in this country to provide access to every citizen and every patient and bring it closer to them," he added.
The centre is also expected to incentivise and promote consolidation in the start-up environment by allowing for a carry forward of losses and accumulated depreciation during mergers and acquisitions.
Kumaraswamy Virpupakshan, Chief Financial Officer, JK Paper Limited felt start-ups will always have to be complemented with scaleups. They are all small outfits, and they have to continuously raise funds as they go along.
“There are 2-3 conditions imposed under Section 79, which were coming in the way of raising funds because most of the funds for start-ups come from their equity and that dilutes the existing shareholders to less than 51 percent, and can sometimes go as low as 10 percent too. So on the accumulated depreciation and losses etc, these start-ups are not able to carry forward because there is a change in shareholding. If this is done, this is a welcome measure and it will definitely boost the ecosystem for start-ups," he said.
The need of the hour is a sustained Capex cycle, which will further get a boost with the government’s spending programs. The Indian Tax Department functions as a start-up trying to fix inconsistencies in processes and brings about greater stability in the system. In terms of financial compliances for both manufacturing and start-up firms, the government needs to simplify the process of compliances, both on the direct tax and indirect tax fronts.
“I firmly believe that the biggest problem of our today's tax system today is that it is very, very complex if we compare it with other countries. The government has made many attempts to simplify it but, instead, they keep making it more and more complicated. A classic example is GST, which came with the idea of one registration, one seamless tax but it looks more complicated than the VAT system," said Sharad Sodhani, Chief Financial Officer, Wakefit Innovations Private Limited.
The other big incentives offered by start-ups – ESOPs – are also heavily taxed, making them not as effective for employees. This also needs to be amended. He added: “My view here is not just for start-ups but for any unlisted company, ESOPs should be taxed only at the time when employees can encash them. These things should be simplified to encourage the talent to stay in the country. If the government starts putting up simplification in all the laws, automatically compliance will grow and the ease of doing business will increase in India."
There are a lot of expectations from the Union Budget 2022. “I believe the government should give an option to amend or edit one’s return at least once. If any businessmen have made a mistake due to any reason, at least they should get a chance to amend it. Secondly, the government should give a first three-year option where people can make a quarterly return rather than computing every month because start-ups typically have small teams where finance is an overlooked function. Also, the government should reduce documentation for movement of goods for ease of doing business," said Sumit Kawariya, Financial Controller, Clear.
For the manufacturing sector, the industry is seeking an expansion of Make in India 2.0 to more sectors apart from the 27 sectors it currently covers and a simplification of the overall tax regime.
“For this year and the next, the three relevant themes from a manufacturing point of view very clearly are investments, inflation, and consumption. In investments, I think, our balance sheets today are pretty strong. What we are waiting for are cues, largely in terms of inflation and consumption. Secondly, energy elements like gas or power should be brought under GST to reduce the cascading impact of taxes," said Himanshu Jindal, Chief Financial Officer, Orient Bell Limited.
“On the consumption front, we supply real estate, which is taxed at 1-5 percent depending on what sort of a project it is. But on the input side, the supplies that we made to real estate, from building materials, whether it's steel, steel, cement, or us, are taxed at anything between 18-28 percent making the entire system very inefficient and making housing more affordable," he added.
For a country like India which is growing and developing, the manufacturing sector is still nowhere near the aspirations that we have set for ourselves even in terms of the 25 percent contribution to the GDP, and we are still 7-8 percent away from that mark. In an uncertain economic environment, the sector seeks action from the budget.
In terms of ease of doing business, the top priority of the government should go beyond just tax. “One window approval process is something that I think would be a big ask. On the tax side, there is so much going on and GST. How do we just consolidate and simplify the expectation from the industry on the filings on returns?" said Cordeiro.
Production linked incentives are emerging as another major area of focus to incentivise private investment. MSMEs are major contributors to the economy and they need to be a focus area for the government, which needs to incentivise investment into MSMEs.
As a financial solutions provider, Clear works closely with both the industry as well as the government to come up with systems that can be integrated with ERPs of firms to automate the process of GST and tax compliances. In a world where regulations keep changing in terms of compliances, one of the major challenges faced by companies is to change their systems to incorporate the changes in returns filings.
“Changing anything in ERP is a cumbersome task because it is very costly and it is not always possible to change your core accounting systems. We use modern tools to enable the business to adopt the changes which are made at our end and the tools can immediately be adopted by the companies. Technology is also being used today in tax optimisations," said Kawariya.
"Exciting news! Mint is now on WhatsApp Channels 🚀 Subscribe today by clicking the link and stay updated with the latest financial insights!" Click here!
