25 Feb 2016 20:59 IST

Widen tax base to garner higher revenue

Huge additional income can be generated by levying 2-3 per cent of tax on a much lower income limit

One measure I would like to suggest that the Finance Minister can include in the Budget is to increase the number of people paying direct taxes. Most analysts argue that the limit of non-taxable income must be raised to ₹3 lakh or ₹4 lakh per annum. I would, however, suggest that the taxable income limit be brought down to ₹1 lakh a year and that the authorities levy a very small amount of tax — say 2-3 per cent of annual income — on all individuals whose income is between ₹1-3 lakh. This shall be a huge revenue generator for the government and will definitely increase the percentage of people paying income taxes from a measly 3 per cent of the population to at least 10 per cent. The revenue streams from this may also help reduce indirect taxes, such as the 14 per cent VAT.

Some of the sectoral expectations I have from Budget 2016 are:

Startups: Startup ecosystem is booming in India and the Budget is expected to address this sector’s needs. With the Startup India action plan being unveiled by the government a debt fund allocation is anticipated for startups. In smaller towns and cities where VCs and angels are absent, such a dedicated fund may help boost employment for skilled labor.

Power Sector: The power sector is in perpetual crisis and is a significant contributor to bad loans and other NPAs of public sector banks. Rejuvenation of power sector companies is of great importance. Opening up coal-mines to private players will help as they can be made to work with State discoms to reduce their debt loads by generating profits and paying off bank loans.

Implementation of GST: To have clarity on the amount of tax businesses owe and a simplified tax regime would be the biggest benefit from implementation of the Goods and Services Tax (GST). An increase in the general rate of taxation (central excise, service tax) is likely, which will be couched as being preparatory for GST – perhaps a sign of the rate in the GST regime. I expect the rates to be close to 16-17 per cent.

Travel and tourism: Incredible India still exists! Improvement in the economic situation, coupled with a new-found interest in India makes it a perfect time to showcase what our country has to offer. Giving travel and hospitality a boost helps in more ways than one. The Budget should provide a boost to this sector — a move which will draw more domestic and international tourists.

Sin tax on cigarettes, colas: The total economic cost attributable to tobacco use in India from all diseases in 2011 was ₹1,04,500 crore ($22.4 billion) — equivalent to 1.04 per cent of GDP, which is staggeringly high. So, a high sin tax of up to 40 per cent should be slapped on cigarettes, beedis etc.

A similar tax should be levied on liquor and colas. Soft drink giant Coca-Cola India has said that it will be forced to shut down some factories if the government accepts the proposal to impose a 40-per cent ‘sin tax’ on aerated beverages. This should be a positive step towards improvement of the health of the nation at large!

Airlines: The 5/20 Rule is likely to be abolished in this Budget which will be a healthy reform for the airline industry. Right now over 70 international airlines operate services to India, providing international airlines unfettered access to Indian markets, while simultaneously restricting new Indian airlines from going overseas. Currently, only Jet Airways, Air India, SpiceJet and IndiGo fly to international destinations.

Food & Agriculture: About 60 per cent of the Indian population are farmers and the Budget should primarily address their concerns. Global food prices hit their lowest in seven years in January and this has hurt India’s farm exports. Numbers show that the value of farm exports from India fell by 21 per cent in April-November 2015, over the same period in 2014. Low prices of rice, wheat and cotton are likely to hit farm incomes this year. We need to address the troubling agrarian crisis with a set of schemes and Budget provisions should be aimed at ramping up the rural economy.

Subsidies need to be reduced in a positive manner such that they do not affect the livelihood of the people. The pay increases from the Seventh Pay Commission and the OROP implementation will have a huge impact on the exchequer.