1 min read.Updated: 22 Jan 2021, 07:52 AM IST Edited By Avneet Kaur
'Any decision on Covid cess on higher income categories to fund the vaccination drive could be one-off and will depend on government’s forecasts on tax revenue growth and expenditure targets,' says Rahul Singh, CIO-Equities, Tata Mutual Fund.
After the year hit by the pandemic, all eyes are on Union Budget 2021, to be announced on February 1. The country's economic activity has taken a severe hit due to covid. Experts believe the government will take all measures to support and revive the economy. Rahul Singh, CIO-Equities, Tata Mutual Fund believes, Government’s focus in the upcoming Budget is likely to be on providing acceleration to the economic recovery which has been underway over past few months. Government spending target will key and aided by the (i) strong recovery in nominal GDP growth in FY22 and (ii) relatively higher tolerance for fiscal deficit (globally) even though it will be materially lower than the FY21 levels, he says.
Singh says the Union Budget will be more focused towards healthcare and housing spending this year.
He says, "We expect the focus of spending to be on healthcare, housing and infrastructure. Real estate revival is already underway and driven by genuine demand this time as low interest rates and stable real estate prices have improved affordability; government has the potential to design targeted incentives as a revival in real estate capex will have benefits throughout the economy. Production linked incentive (PLI) scheme has seen early success and further momentum can be imparted if it can be backed up by dedicated export zones with associated infrastructure and easier approvals. More emphasis on devising alternate funding mechanism for infrastructure investments is expected."
Singh does not see any major changes in tax structure in the Budget this year. However he believes there could be an introduction of covid cess on higher income tax payers to fund the vaccination drive in the country.
"There have been significant changes to the tax structure in the last 2-3 years – corporate, individual and capital gains – and hence only incremental changes are likely this time around. Any decision on Covid cess on higher income categories to fund the vaccination drive could be one-off and will depend on government’s forecasts on tax revenue growth and expenditure targets. On the reform front, Government is likely to target PSU reforms (including banks) and privatisation as one of the key areas to raise capital over the medium term."