Budget 2020: Finance Ministry Seeks Suggestions For Rationalising Income Tax
The finance ministry has kickstarted the exercise to formulate Union Budget 2020-21 by seeking suggestions on changes in direct and indirect taxes from industry and trade associations.
Finance Minister Nirmala Sitharaman, who announced several economic reforms to stimulate growth in the Indian economy within a month of her maiden budget getting approved, will present Budget 2020 on Feb. 1.
While the union finance ministry holds pre-budget consultations with representatives of different sectors and stakeholders, its department of revenue perhaps for the first time put out a circular seeking suggestions for changes in income tax rates for both individuals and corporates as well as in indirect taxes such as excise and customs duty.
The Nov. 11 circular asked industry and trade associations to give "suggestions for changes in the duty structure, rates and broadening of tax base on both direct and indirect taxes giving economic justification for the same".
"Your suggestions and views may be supplemented and justified by relevant statistical information about the production, prices, revenue implication of the changes suggested and any other information to support your proposal," it said.
After presenting Union Budget 2019-20 on July 5, Sitharaman on Sept. 20 announced corporate tax cuts—bringing down the effective rate to about 25.2 percent for firms not receiving any incentives or exemptions. New manufacturing companies formed after Oct. 1 will enjoy a 15 percent (effective rate of 17 percent) corporate tax rate, against 25 percent previously. The move is estimated to result in Rs 1.45 lakh crore in revenue loss for the government in 2019-20.
Now, there are demands to cut income tax rates for individuals to spur a consumption-led revival of the economy. India's economic growth had slipped to a six-year low of 5 percent in the April-June quarter. A revival in India’s GDP growth rate may take a few quarters despite announcements to boost real estate and financial sectors.
"As regards direct taxes, while forwarding your proposals, take into consideration the recent initiatives of the government to reduce corporate tax rates...”, the orders said.
"The government policy with reference to direct taxes in the medium term is to phase out tax incentives, deductions, and exemptions while simultaneously rationalising the rates of tax.
“It would be also desirable that while forwarding the suggestions/ recommendations, positive externalities arising out of the said recommendations and their quantification are also indicated," it said.
Goods and Services Tax-related requests are not examined as part of the annual budget, the orders said, as they are looked at by the GST Council.
It, however, sought suggestions related to customers and central excise duty.
The suggestions have to be submitted by Nov. 21.