Suggestions/ Expectations for Union Budget 2021-22

Last Updated On: Jan. 18, 2021, 8:43 p.m.
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EXPECTATIONS OF UNION BUDGET 2021-22

Due to the worst challenges of presenting a budget in the background of economic disaster caused by COVID-19, the hope of an economic turnaround continues in the mind of every Indian.  

The Covid-19 pandemic has turned around the education sector. The transition from traditional learning to digital methods has helped the growth of edtech start-ups and existing companies, and it will most likely continue. At the same time, the Union Budget allocation for the edtech sector should be increased by 7-8%, compared to the previous year.

Few suggestions for the consideration of Finance Minister as follows: –

Digital education: Last year schools, colleges and institutions were shut entirely, with students and teachers having no other option left than going digital. Teachers and students demonstrated tremendous adaptability in adopting online learning methods. This opens new horizons for edtech start-ups. The NEP 2020 focuses on extracurricular and vocational learning with no separation from academic streams across the country. According to NASSCOM, India’s edtech space will be a $3.5 billion opportunity by 2022.

1. Cess / Surcharge

NDA governments have carried a track record of raising taxes by enhancing the rates of surcharge and cess while philosophically endorsing the proven merits of reducing taxes and not touching the basic structure to collect more revenue. Newspaper reports have already been indicating a serious possibility of additional covid cess in the coming budget.    Last year, the Finance Minister claimed big kudos for reducing basic rates for specified corporate taxpayers with the objectives of:

√ Competitiveness of the economy with one of the lowest tax rates in the world

√ Attracting foreign investments

√ Improving the manufacturing base of the country

√ Ease of doing business.

 

2. Cost economics of Agriculture output

The statement showing the computation of loss of tax on account of various exemptions and dispensations as an addendum to the budget has never taken into account the approximate loss of tax revenue on account of exemption granted to income from agriculture. Appx reported GDP of agriculture is around 19 lac cr constituting nearly one-fifth of the total GDP.

However, the expenditure budget allocates nearly 3.3 lac cr comprising of food & fertilizer subsidy, Kisan welfare schemes etc. Agriculture expenditure budgeted by various States to accommodate loan waivers, free electricity and localized programs, one can add another 15% to Centre’s budget of 3.3 lac crore to arrive at an approximate cost of 4 lac crore.

Assuming a quarter of the agriculture income were to be taxed @ 33%, then the total cost of generating 19 lac cr of agriculture income adds up to Rs 1.5 lac crores.

The abnormality of expenditure (5.5 lac cr) on agriculture vis a vis the agriculture output (19 lac cr) is self-explanatory and raises serious concerns on effective cost economics of our agriculture produce. Request the Finance Minister to evaluate the rationalization of expenditure under this head to provide room for economic growth and eliminate wastage/misappropriation, if any.

Abuse of income tax dispensation to agriculture income is another area that needs serious attention. Agriculture income as per income tax records is understandably several times the actual agriculture income of India. This needs a white paper for working effective steps to curb tax avoidance and abusing the exemption.

Lastly, the income tax act needs overhauling by doing away with outdated provisions of taxing notional incomes and taxing perks on motor car usage etc. in line with modern times. Covid has impacted the salaried class the most and as a special one-time dispensation to help a large number of people losing their jobs, the exemption for house rent allowance should be given for the rent paid for the entire financial year instead of restricting to the period of salary income only.

 

4. Income from Salary

Finance Ministers have gone on record with respect to the higher effective incidence of taxation on the salaried class with tax deduction at source by the employer and having to pay tax on entire income except for marginal reliefs of the modest standard deduction and few deductions subjected to savings etc.  In the last budget, estimates for personal taxation were raised with an increase in surcharge and the possibility of expanding the individual tax base.   However, the long-pending need to reformulate the taxation of salaries in line with modern trends of CTC structures of compensation remains unaddressed.  After paying GST with heavy cess and registration charges etc, it makes very little sense to also value perquisite as per the age-old system when total number of motor cars were very handful.  It makes imminent sense to do away with the prerequisite taxation of the motor cars and similar mundane provisions.   Massive job losses faced by the salaried class also deserve special consideration of availing deduction for paying rent even for the period of no salary income at least for the current financial year.

 

5.Balancing the economic growth and fiscal challenge

Growing demand for defence expenditure, an imminent shortfall in projections for revenue collections and demand to provide stimulus to restart the economic growth poses a herculean challenge before the budget makers.   While a larger fiscal deficit may be inevitable, it would make ample sense to shift focus to raising higher non-fiscal revenue.   Apart from expediting disinvestment in PSUs, additional suggestions inter-alia few out of box ideas for raising financial resources are as follows : –

i. Evaluate the possibility of zero-coupon Covid Bond with a duration of Ten years and the redemption price be linked to incremental economic growth over the base period of 20-21. This would mean no burden of interest provision and incentivize economic growth to service the bond maturity.

ii. Mandatory transfer of fifty thousand rupees from the savings account held with banks maintaining a balance of over five lacs for the last 24 months to a Covid bond of 3 years. Banks should be allowed to lend against the covid bond to the depositor at the rate of interest of saving bank.   This would generate large funds for the government without any need to levy a Covid cess and carry acceptance of general public.

iii. Reduce capital expenditure allocation requests from PSUs slated for disinvestment, stake dilution and decontrol. Last year PSU capital expenditure was 6.7 lac crores and a fifty percent reduction equates of generating 3 lac cr which would be helpful in bridging the likely shortfall of 4 lac crore indirect tax collection in the current financial year.

iv. Cut the expenditure on Agriculture which has gone up nearly thirty-five percent plus post-2019. Cost economics of agriculture need serious consideration to constructively correct the imbalance of expenditure.

v. Convert a portion of annualized pension liability to a special bond against which loan can be taken on subsidized rates of interest. This will help cut the fiscal deficit and contain the interest cost which remains one of the single largest concerns of rising fiscal deficit.

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