Prologue: As part of our series focusing on the Union Budget 2019, we’ll be highlighting the opinions of industry experts and see what they think and expect from this year’s Budget. In this article, Nitin Garg, an expert on international tax matters talks about his Union Budget 2019 expectations. Read on!
And the period of expectations starts all over again! The first big event, following the re-election of the Modi government with a thumping majority, the Union Budget 2019 is almost here. It’s not without a reason that everyone is keenly looking at this year’s Budget.
Being the first budget of a full 5-year term, this Budget should lay down the directions of the Government and should be a good give-away on what to expect over the next 5 years. In the last Interim Budget in February 2019, the standing finance minister laid out a vision for next 10 years. He mentioned almost 10 different areas where their government would keep looking to invest, if elected to power.
For me, it would be interesting to see if the government walks the talk and lays out a plan which effectively works towards its vision. I believe it should, given the experience in 2014, when it presented its first budget for its first 5-year term.
Fiscal deficit has been the real talk over the last 5 years. Given its impact on the sovereign rating (which India did decently in, in the last 5 years), the Government doesn’t essentially have any scope of splurging. Putting cash subsidies of Rs. 2000/- per farmer in the last Budget did make a dent on the otherwise-under control fiscal deficit.
Hence, India cannot afford to lose sight of the fiscal deficit and go all-out to please the voters, at least for next 3-4 years. It’s a tight rope and maintenance of fiscal prudence should be paramount at this stage.
Impact of GST has started to settle down and the Government should be in a much better position to predict GST collections. However, GST is directly linked to consumption in the economy. More the consumption, more the GST pay-out for taxpayers. This also reflects the true health of economy. There is little doubt that economy is in middle of a rough patch. Spending/consumption would need a boost.
So, how does one achieve it?
Government can spend the money either by putting money in pockets of consumers, i.e., by reducing taxes, increasing subsidies, etc. This approach may not lead to long-term gains whereas short-term gains, if any, will perish very soon. Hence, this Budget should ideally be focusing on asset-backed spending. This means there should be renewed focus on infrastructure spending and pushing investments. Such spending will flow to consumers, and at the same time, create long-term assets.
Any other form of Government spending could be detrimental in long run.
Given the tight rope the Government is walking, there is little, if any, scope for reduction in tax rates. If at all, I would expect increase in tax rates somewhere, though it may not be significant. Like the last few budgets, the Government may focus more on improving in tax collections, penalising tax evaders even harder, using digitisation for ease of payment, collection and assessment of taxes. Anti-abuse provisions may become even tighter, and the Government may introduce elements from certain international developments, especially around tax on digital economy.
At the time of writing this piece, international developments are also favourable. US and North Korea have shaken hands, and clearly, the threat of war has subsided. US also goes to election soon and this may mean that the President could go all out to pacify all those who were hurt in the last 5 years.
Hence, possibility of loosening of stand on the US trade war with China and Iran is also not unimaginable. All of this will have an impact on how the Indian economy fares over next 5 years.
We clearly need some catalyst to boost the economy. And now, the government has everything going for it, which means it will be under severe pressure to delivery constantly for next 5 years.