Pune: KPMG in India has said that in Union Budget 2021-22, on the tax side, there are important steps taken towards easing compliance and facilitating dispute resolution.
Arun M. Kumar, Chairman and CEO, KPMG in India said, “The Finance Minister has proposed a number of strong steps that should revive economic growth. The proposed acceleration of investment in infrastructure, creation of a development finance institution and asset monetization across key sectors are timely. Notable highlights of the Budget include increased investment in capex, recapitalization of public sector banks, setting up of an asset reconstruction and management company to take over stressed debt, a new securities market code and permitting increased foreign investment in the insurance sector. In fact, the Minister signaled even bolder steps including privatization of two public sector banks and one insurance company.
On the revenue side, the budget appropriately assumes increasing collections through growth and also envisages living with a higher fiscal deficit for the next few years. An aggressive disinvestment plan, and the monetization of land and other governmental assets, if effectively executed will greatly help balance the fiscal equation. This is a preferable approach to increasing taxes at this juncture as enterprises and individuals should instead have the resources to spend and as a result create buoyancy in the economy.
On the tax side, there are important steps taken towards easing compliance and facilitating dispute resolution. While there is no increase in income-tax rates, there is an overhaul of customs rates on some items as well as the introduction of an Agriculture Infrastructure and Development cess on certain items.”
Rajeev Dimri, Partner and Head of Tax
Rajeev Dimri, Partner and Head of Tax, KPMG in India said, “India witnessed a monumental event, with the announcement of the first ever digital budget of the decade. Budget announcements were focused on economy revival, paving way for stability and growth, being heavy on regulatory framework changes. A significant change, the impact of which would be felt across industries, is the proposed introduction of the securities market code. Also an important proposal, on expected lines, has been the introduction of certain dispute resolution mechanisms – reduction of the limitation period to 3 years should help in bringing certainty to taxpayers.
Interestingly, it is proposed that a dispute resolution committee would be formed for small taxpayers. Said to be faceless, it would give an opportunity to taxpayers to resolve disputes by approaching the Committee. In line with digital reforms in tax administration, a faceless Income Tax Tribunal is proposed to be set-up, where all communication would be carried out in an electronic format. There has been some significant revamp in the Advance Ruling Authority Mechanism as well, helping in fast tracking and processing applications.
From an Indirect Tax perspective, with the objective of improving indigenous manufacturing, sweeping changes are proposed to be carried out in the Customs Duty rate structure, wherein old exemptions would be phased out and a new comprehensive rationalized rate structure would be introduced. While the much expected Covid cess was not introduced, instead an agricultural and infrastructure cess is sought to be introduced on a small number of items. The fine print would need to be seen to determine impact on the food industry.
Vikram Hosangady, Partner and Head, Clients and Markets
Vikram Hosangady, Partner and Head, Clients and Markets, KPMG in India said, “A very holistic budget very much in sync with what the economy needs i.e. growth and liquidity. The increased outlay for capital expenditure, focus on investment in healthcare , encouragement to the infrastructure sector and no increased personal and corporate taxes are key highlights which will help sustain the gathering momentum in the economy.
There is a lot of global money waiting to come in and this budget along with the sequentially improving economic indicators will mean significant FDI and fund flows. The divestment target is very achievable especially if the minority stake in LIC is sold. The creation of the ARC/AMC for stressed loans will ensure faster resolution and free up capital for credit growth.
Nandita Tripathi, Partner, M&A Tax and PE
Nandita Tripathi, Partner, M&A Tax and PE, KPMG in India said, “Budget 2021 is infrastructure all the way! Union Budget 2021 was presented today amidst a lot of expectations at the back of Covid 19 stress in the economy, need for more public spending and high unemployment rates. With there being no increase in tax rates or tax incidence on either individual or corporate taxpayers, the FM has attempted to meet the requirement of increased public spending through proposed monetization/ disinvestment plan.
To address revenue sources, the government laid particular emphasis on asset monetization through REITs / InvITs, highlighting the process that has already been initiated for some of the road and transmission assets held by NHAI and PGCIL respectively. Similar monetization efforts are expected in future for oil & gas, petroleum, airports, warehousing space, sports stadiums, etc. In a big move, the Government also announced setting up of an entity to address the stressed assets of banks. The same will allow banks and financial institutions to clean its balance sheet and enhance the lending capacity of such institutions. The details of the proposal are though awaited.
In line with the overall infra agenda, there has been some positive change on the tax front as well aiming to attract more long-term capital in the sector. In relation to REITs / InvITs, it is proposed to remove the tax withholding requirement on dividends distributed to such business trusts, making cash flows efficient to meet the objective. Further, provisions in relation to debt funding from FPIs, by REITs / InvITs are expected to be introduced in the regulations, thereby augmenting access to funds.
Extending treaty rates to FIIs for dividend income (from a withholding tax perspective), should put to rest some of the recent controversies on this front. In a major relief to Sovereign Wealth Funds/ Pension Funds, the tax exemption provisions, which were introduced last year, are proposed to be rationalized and some of the conditions, which investors were finding hard to comply with, are expected to be removed. While the devil lies in the fine print, given the infra focus of this Government, from a headline perspective, the tax changes seem to be in line with some of the key asks from the industry.
Overall, the Budget continues to focus on infrastructure development in the country. At the same time, it also continues to facilitate patient capital from foreign investments which remains the key driver to provide thrust for such development.
Vivek Agarwal, Partner, Infrastructure, Government and Healthcare Practice, KPMG in India said, “The Government’s focus on restarting the economy is clear in its commitment to the time-tested Keynesian principle of spurring infrastructure to create jobs and channelize economy multiplier cycles. With a 5.4 lakh cr budget, there is huge focus on strengthening infrastructure through industrial corridors, highways, BRT, railways, ports and power especially with the highest ever allocation to MORTH. And this promise comes with attention to detail such as a focus on PPP, special schemes for faster resolution of disputes, and a clear intention to augment infra-financing sources such as Debt-Financing institutional support which has a clear target of creating a lending portfolio of over 5 lakh cr in 3 years; and a thought-through specified Asset Monetisation (especially surplus non-core land with corporations) and Strategic Disinvestment plan.
Parallel to infra impetus; Govt’s focus on Atma Nirbharta through Performance-linked incentives, mega textile parks and an enhanced National Infra Pipeline of 7400 projects, is expected to fuel the industrial propulsion that is the clear hallmark of this budget. It’s remarkable that the Govt has also set aside incentives and measures on the private side of public infrastructure through its 3+ lakh cr scheme for discoms and subsidy to Indian shipping companies in global tenders. Overall, the budget has a positive, expansionary outlook towards economy, and builds on the trend towards performance-based incentives started by this Government in 2014, which is again reflected in incentives for capital projects with a positive progress (44000 cr to DEA) and strengthening PLI in manufacturing.
Anish De, Partner and National Head, Energy and Natural Resources, KPMG in India said, “In Oil and Gas sector, Ujjwala Scheme has provided LPG access to 8 crore households and now would cover additional 1 crore households, 100 Districts to be added to the City Gas Distribution Network and a new gas pipeline project in the state of Jammu & Kashmir – By announcing expansion of coverage under Ujjwala Scheme for additional 1 crore household and City Gas Distribution to new 100 districts, the government shows its intent of increasing availability and accessibility of clean energy to its citizen. It is admirable that the government has continued with its focus on clean energy and Infrastructure augmentation.
Setting up of Independent Gas System Operators to manage the common carrier capacity of all gas pipelines in the country – This is a much awaited initiative that will ensure a fair, non-discriminatory and easy access to the common carrier capacity in the national gas grid system. Gas consumers are poised to benefit immensely. An important step that will add to the government’s effort to move towards a gas-based economy.
FM also announced the introduction of a framework for promoting competition in power distribution – As the Discoms operate as regional monopolies in their respective areas of supply, this framework will bring in private players and improve operational efficiencies, which will benefit consumers, by providing them choice for supplier selection. This proposal has been in works for 6 years, when the Electricity Amendment Bill 2014 was tabled. The recent Electricity Amendment Bill 2020 excluded this provision, and therefore it’s a welcome step.
To improve the sustainability of financially ailing Discoms, FM has announced a budget of Rs. 3.05 lakh Crore for revamped Discom performance improvement scheme – This will be linked to financial improvements and will include expenditure on infrastructure, including prepaid smart metering, feeder segregation, upgradation of systems etc. Last such scheme (UDAY) was launched in 2015. Revamped scheme will be helpful in financing continued reforms focused on Discom sustainability and will benefit consumers and industry alike.
Apart from this FM also announced monetisation of PGCIL’s transmission assets worth Rs. 7000 Crore through InvIT sponsored by PGCIL – It will be an important and first of the kind step in power sector which will help monetize operational assets and channelise freed up capital into greenfield power sector projects.
Parizad Sirwalla, Partner and Head, Global Mobility Services- Tax, KPMG in India said, “The Finance Minister presented the 2021-22 union budget on the back of Pandemic induced contraction in global as well as Indian economy. The FM had a daunting task to revive the economy at a faster pace, as a furtherance to Atma Nirbhar structural reforms packages already announced, amidst limited fiscal headroom. The budget focused on higher Government spending on healthcare benefits and infrastructure capital expenditure.
From an individual proposal’s standpoint, one-person company incorporation was incentivized by rationalizing restrictions on paid up capital and turnover. Compliance relief was provided to senior citizens taxpayers (75 years and above) having interest and pension income only by an exemption from filing income tax return. To reduce ongoing litigations, a new dispute resolution scheme was introduced for small taxpayers.
Also, the time limit to reopen income-escaping assessment was truncated from 6 years to 3 years. Rationalization of advance tax payment on dividend income post declaration/ payment is also a welcome change. The FM also mentioned to provide some relief from double taxation for NRI taxpayers in respect of their income accrued outside India in the foreign retirement accounts.
Naveen Aggarwal, Partner, Tax, KPMG in India said, “A budget that bore an unprecedented and unique burden of expectations in its run up does a redux of 1991. Precise and immediate actionable measures to put India back on in its growth trajectory through rebuilding and reordering development priorities with a focus on going full throttle on capital expenditure, infrastructure development and ease of compliance.
A bold and transformative budget in the true sense of the word to help revive the COVID battered economy at this critical juncture in its resurrection story.
Bhavik Damodar, Partner, Deal Advisory, Office Managing Partner-Mumbai, KPMG in India said, “The FM has presented a progressive budget, focused on achieving growth through capital investment, job creation, infrastructure and healthcare build out which will be part funded through disinvestment and privatization. The FM has also kept direct tax rates unchanged and proposed to simplify contractual regulations and investment regulations and proposed creation of more enabling organizations.
While more details will be available shortly, these are really positive moves and if implemented well, can create a really positive impact on the economy for years to come.”
Chintan Patel, Partner and Head, Building Construction and Real Estate, KPMG in India said, “The proposed Debt financing for REIT’s and InvIT’s (through a suitable amendment) is expected to provide a major fillip and will attract more investments for the sector.
Rajosik Banerjee, Partner and Head, Financial Risk Management, KPMG in India said, “To address concerns around asset quality, credit loss and liquidity stress, this budget has been proactive to infuse additional capital of INR 20,000 Cr to PSU Banks for providing continued credit access to wholesale and retail borrowers, and therefore push growth agenda.
Elias George, Partner and Infrastructure, Government and Healthcare, KPMG in India said, “A widely expected and most timely focus has been provided to ramp up India’s public healthcare infrastructure and programmes, which is one of the six pillars of the budget. The centrality of this task is reflected in the unprecedented ramping up of the national public infrastructure spend by 137 percent to INR2.2 trillion by FY22.
Apart from encompassing both preventive and curative healthcare aspects, there is a refreshing, new focus on tackling the causative aspects of healthcare by announcing transformative schemes for mitigating urban air pollution as well as for providing protected drinking water to all over five years. The need for augmenting healthcare infrastructure has never been more compelling, and in response the budget has earmarked INR 64,180 crore over six years to develop capacities of primary, secondary and tertiary healthcare systems and to improve existing institutions, apart from enhanced spends for the healthcare programmes.
To mitigate the causative factors that adversely affect people’s health status and wellbeing, the budget has announced INR 2,217 crore for setting up 42 urban centers to tackle air pollution as well as INR1.4 trillion for launching Urban Swachh Bharat Mission 2.0 over 5 years. The challenge of providing vaccination coverage against the pandemic for those in need has been squarely met by earmarking INR 35,000 crores which will be further augmented, if required.
Manish Aggarwal, Partner and Head – Energy & Infrastructure M&A and Head – Special Situations Group, KPMG in India said, “Budget 2021 has been very transformational and makes some bold statements. Stability of tax regime, bringing in Dispute Resolution Mechanisms, undertaking bolder reforms such as privatizations, creating an institutional structure for resolution of stressed assets, and a big push to Infrastructure & Health care spend have been on the wishlist of every stakeholder. I believe Hon’ble FM did not disappoint.
Infrastructure – Transformational approach and plugging chinks in the armour: Budget 2021 delivered a big bang boost for the infrastructure sector as the government aims to ride on it to deliver a USD 5 trillion economy. Acknowledging that greenfield infrastructure creation is largely the domain of public sector, it has enhanced allocation to INR 5.54 Lakh Crore, while at the same time has laid a foundation for asset monetization via a National Monetization Pipeline and divestment target of INR 1.75 Lakh Crore. Allocations for the health sector and water & sanitation have seen a phenomenal rise as ‘Ease of Living’ comes into play. To augment infrastructure financing structure- a DFI with capital infusion of INR 20,000 Crore has been proposed. Further, creation of a stressed loan management ARC-AMC framework can enable the banks to focus on their core business which is credit, while also ensuring optimal value realization.
While measures have been announced to enable investments by private sector – measures like introduction of a conciliation mechanism, rationalizing triggers for SWF tax exemption, DDT exemption for InvIT/ REITs, were missed as it was an opportunity to clear huge private capital stuck in its disputes with EPC contractors and PPP concessionaires. The power sector discom reform linked scheme of INR 3 Lakh Crore needs to avoid the fate which previous schemes have met. Execution still remains the key risk to achieve the desired outcomes.
Himanshu Parekh, Partner and Head, Corporate and International Tax, KPMG in India said, “The main thrust of the first paperless Budget was on the themes of health, human capital, innovation and R&D, physical infrastructure and providing impetus to Government disinvestment program. The proposed hike of FDI in insurance sector to 74% from 49% will give a significant boost to the sector. A slew of tax proposals were announced with a view to ease the compliance burden and bring in transparency. These include reducing the time frame for reopening of assessments from 6 years to 3 years, waiving off withholding tax on dividend payment to ReIT and InvIT and granting benefit of tax treaty rates for dividend to FPIs.
In order to provide a boost to the start-ups, the eligibility for claiming tax holiday is proposed to be extended by one more year. It is also proposed to extend the benefit of additional deduction of interest on affordable home loans up to FY 2021-22. In order to ease compliances, it is proposed that the tax return forms will be pre-filled with details of capital gains, dividend and interest income. Directionally, it was a good Budget aimed at pumping priming the economy, ramping up government expenditure for stimulating growth, reducing compliances and bringing the economy back to pre-covid levels.
Nitish Poddar, Partner and National Leader- Private Equity, KPMG in India said, “Foreign capital is a vital factor in the overall development of the Indian economy. Private Equity with huge dry powder is one of the biggest contributors of foreign capital to India. FDI hike in the Insurance sector from 49 per cent to 74 per cent with appropriate protections on control will strengthen the sector and provide impetus to controlled deals.
Policy announcement of permitting Offshore debt borrowings for InvITs and REITs and no tax withholding on dividend payments to provide access to foreign debt raising and boost investment in REIT and InvITs. Privatization of banks and an insurance company is a step in the right direction. Relaxations in eligibility conditions for SWFs and PFs availing tax exemptions to further attract long term patient capital for the infrastructure sector. Setting up of ARC and AMC to take over and manage existing stressed and disposing off to AIFs and other potential investors for monetization to help to clean up bank books and create investment opportunities for stressed funds.
Tax neutrality provisions introduced for relocation of overseas funds to IFSC is expected to encourage homecoming of the fund industry. Clarification on non-availment of depreciation on goodwill could impact controlled deal economics and structuring. Further, change of reassessment period could impact indemnity discussions on exit transactions.
Santosh Dalvi, Partner and Deputy Head, Indirect Tax, KPMG in India said, “It is beyond doubt that the expectation from the Hon’ble Finance Minister was to announce measures for revival of the economy post the worst pandemic which has hit the globe. To continue the make in India movement, which was launched by Hon’ble PM in 2014, the FM has announced 6 major pillars, Health & well-being, Physical & financial capital & infrastructure, Inclusive development for aspirational India, Reinvigorating human capital, Innovation & Research, Minimum Government and Maximum Governance.
The sharp increase in Capital expenditure by 35% to 5.54 lakh Cr would provide the necessary impetus to the manufacturing sector. The MSME sector has also received a boost in the form of allocation to the extent of INR 57000 Crore, which would assist the MSME players to re-start their businesses, who had been worst hit by the pandemic. Further, to ensure that India is eventually a front runner in the research sector, the FM has announced that modalities have been worked out; the outlay for National Research Foundation will be INR 50,000 crores, over 5 years. This will indeed be a boost to the research ecosystem of our economy.
Announcements like proposed changes in the customs duty rates are clearly aimed at promoting domestic manufacturing, in line with the flagship program of the Government i.e Atmanirbhar Bharat. Extending Production-linked incentive (PLI) scheme to 13 industries in two tranches with combined financial outlay of almost Rs 2 lakh crores over 5 years reconfirms the Government’s Make In India initiative.
Customs duty rates on certain auto parts have been increased from 15 per cent from the current rate or 7.5 per cent /10 per cent. Certain ferrous and non-ferrous metal products which are used as an input for the iron and steel industry will attract a low duty rate of 7.5% which are currently taxed at 10/12.5 per cent. Raw materials required for the manufacture of CRGO steel will be exempt from customs duty. These changes are in line with the Government’s intention of Make in India and Atmanirbhar Bharat and are also likely to attract global players in the Indian manufacturing sector. Scrapping policy also is another great example for boosting the automotive sector.
The Finance Minister has placed significant emphasis on improving ease of doing business and growth of startups. The key features of the tax proposals that deserve a special mention are prefilled editable GST return, enhancement of GSTN system, reviewing of 400 exemptions this year through consultations, revised customs duty structure free of distortion, increased focus on self-compliance and introduction of penalty and confiscation provisions for misdeclaration and wrongful claims of remission or refund.
The exclusion of “Goodwill” from the definition of “Intangible Assets” would put to rest the future litigations arising on account of availability of tax depreciation on Goodwill generated at the time of business restructuring, however this could be a dampener for future corporate restructurings. To give further relaxation to the MSME sector, the Tax Audit exemption limit has been increased from INR 5 Cr to 10 Cr for entities having 95% of their transaction in digital mode.
To conclude, the tax proposals in the budget are towards creating attracting investments, bringing in faith and reducing litigation, and implementation will be the key for the measures announced in the budget to support growth.
Vivek Gupta, Partner and Head, M&A and PE Tax, KPMG in India said, “Many see the Budget as positive since there aren’t many domestic surprises. The Budget however makes a very important statement by creating an enabling framework for funds that were earlier not naturally flowing into the economy. The entire focus on asset monetisation of public operating infrastructure assets is a big development.
The fact that we will now see NHAI and Power Grid sponsor one InVIT each, is an important signal. This has been accompanied with opening up of debt financing of InVITs and REITS by foreign investors. Similarly, putting up two banks and one insurance company are two real disinvestment programmes and is a big positive. The miss perhaps is the non enactment of the overseas listing regime -widely expected to come in to enable further funding of our fast developing startup sector.
Hitesh D. Gajaria, Senior Partner, KPMG in India said, “Budget 2021 is largely expenditure focused, with few important taxation proposals. There is a willingness to brave a large fiscal deficit, calculating on the economy’s projected buoyancy and better compliance and administration to yield tax revenues in an improving economic scenario, despite continuing Covid-19.
The stock market currently celebrates that no proposals introduced new direct taxes or increased existing ones as well as the significant announcements on public sector banks’ privatization. What is also laudatory is continuing emphasis on administrative reform and simplification measures in the area of taxation. Steps to reduce the window to re-open assessments, relaxations for very senior citizens from filing returns and rationalization of tax audit provisions are welcome.
Areas where incentives / concessions have been given or extended are for affordable rental housing, extensions for start-ups, relaxations for sovereign wealth funds / pension funds and new incentives for units setting up in the International Financial Services Centre (‘IFSC’) in the Gujarat International Finance Tec (‘GIFT’) city.
However, some important changes could affect M&A activity. Transactions of slump exchange are now specifically made taxable, and depreciation on goodwill is specifically disallowed, despite many judgments favouring taxpayers on this issue. Clarifications made retrospectively in the arena of Equalisation Levy have now explicitly expanded its ambit to almost all transactions having some element of a digital character.
Waman Parkhi, Partner, Indirect Tax, KPMG in India said, “On Divestment of PSU banks and setting up of Asset Reconstruction and management companiesThe Budget aims to create growth enablers for the economy laying emphasis on four themes – efficient use of assets, furthering ease of doing business, increasing investment in infrastructure and reducing government’s role in business.
Asset monetization will result into efficient use of government assets and can fuel economic growth in the next fiscal which otherwise is estimated at 11%. This will be coupled with increased allocation for investment in infrastructure to achieve synergies.
The finance minister not only put a timeline for disinvestment opportunities but further announced that the Government will get out of business except for select CPSEs which is a big statement and can augur reforms 2.0.
Various measures on decriminalization of offences, reducing exemptions under customs, limiting officers’ powers to reopen assessments would further improve the ease of doing business. The first budget of the decade can become path breaking if the themes mentioned in the budget are executed in letter and spirit.
Sanjay Doshi, Partner and Head, Financial Services Advisory, KPMG in India said, “Banking, especially Public sector banks, has been given significant support through measures around capitalization, setting-up of asset reconstruction to handle bad loans and divestment of 2 PSU Banks.
Divestment of PSU Banks – Few steps forward – will bring better greater focus on low performing PSU Banks, autonomy, and capital optimization. Will also lead to consolidation in the banking and NBFC sector. Now look forward to RBI’s guidelines on Ownership of Banks.
Suggested Amendments to LIC Act around governance and surplus distribution is a key enabler for a successful LIC IPO. This will have a greater impact as well in the Insurance industry. Products of private insurers will now be more at par. Setting up of Asset Reconstruction and management companies to handle Bad Loans/ Assets is a positive step for NPA resolution, though one would have to look forward to the finer details of AMC structure and operations.
Increase in FDI limit to 74% in Insurance will help revive growth capitalization of smaller and mid Insurance players. Insurance sector may see heightened interest from foreign investors considering liberalisation including realignment of stakeholders – however the level of interest may be calibrated depending on the ability to control vs owned.
Bhavik Damodar, Partner, Deal Advisory, Office Managing Partner-Mumbai, KPMG in India said, “I would look at the Budget 2021 as a very progressive budget, aimed at promoting long term growth through a combination of investment across sectors including infrastructure and healthcare, new means of financing, improved and simplified governance mechanisms, and maintaining stability in terms of tax rates and current regulations. The impact of these measures will be determined by the effectiveness of implementation and will be felt for a few years to come. Set out below is an analysis of each of these themes.
The budget has proposed to increase investment in the infrastructure sector across sub-sectors with announcements on healthcare investments, power distribution, water and waste management, city infrastructure, including bus transport (which will also help the auto industry), railways, roads, city gas and gas pipelines. Additional investments have also been proposed in sectors like fisheries, textiles, ship recycling apart from already announced production linked incentives for manufacturing entities and this will help in job creation at a large scale.
The budget has also proposed various steps to assist in financing infrastructure and other budgetary spends which include foreign investment in Invit and REIT debt, NHAI and PGCIL Invits, setting up of a development finance institution, completion of various divestments including Air India, BPCL, SCI etc, privatization of 2 banks and a general insurance company, the initial public offering of LIC, sale of warehouses held by government organisations and monetization of surplus land held by Government cos through a separate SPV. There is also a recognition of the value efficiency that private participation brings reflected in the announcements relating to PPP participation in the operations at 7 major ports, ability for consumers to have more than 1 distribution company to supply power and the next round of airport privatization.
The Government has also announced the creation of enabling institutions like the proposed asset reconstruction and asset management cos to take over and sell stressed assets, SPVs for Government land monetization, and a new regulator for gas transport. The budget has also tried to move towards its stated objective of maximum governance minimum government through a number of measures which include a new securities market code, simplification of regulations for tax exemptions for sovereign and pension fund investors, enhancement of the scope of incentives at GIFT city, strengthening of the NCLT framework, and various measures for easier contract related and tax related dispute resolution.
Lastly, the budget has not made significant direct tax changes either with respect to personal tax, corporate tax and has in fact clarified aspects around dividend and withholding taxes for Invits and REITs, which are currently attractive vehicles for overseas investments. The government has also tried to simplify return filing, reduce the number of years for which returns can be opened, the process for assessments and disputes in Income tax tribunals. These measures lend to a sense of stability. There have been some changes to indirect tax rates in areas including renewable energy components and these are largely linked to incentivizing domestic production.
In summary, this is a forward thinking budget, which if implemented appropriately, is designed to assist India to springboard into this decade to realise its growth potential whilst altering and easing how it does business.
Prahlad Tanwar, Partner, KPMG In India said, “A measured budget for the transport & logistics sector, with emphasis on enhancing core infrastructure across road, rail, port and airport and enhancing private sector participation. Notable allocation of INR 1.18 lac crores for road infrastructure development, with 80% of the total road budget focused on 3 states – WB, Assam & Kerala.
The railway sector to be buoyed by an allocation of INR 1.1 lac crore, with emphasis on infrastructure development and passenger safety. Continued focus visible on enhancing modal share of railways to 45% from the existing 28% level. Seven privatization projects across major ports likely to enhance operational efficiency. The budget indicates larger opportunities for private sector participation across divestment, asset monetization and PPP led projects.
Sachin Menon, Partner and Head, Indirect Tax, KPMG in India said, “Prima facie the Union Budget for FY 2021-22 looks like one of the best budgets in the recent past. The taxpayers are pleasantly surprised as the fears of the government imposing a COVID tax, wealth tax etc. proved wrong.
There is no increase in personal or corporate tax rate even under these extreme circumstances of COVID led slowdown in revenue collection. However, there is significant increase in customs duty to promote local manufacturing and widespread relaxation in statutory compliance requirements under various laws envisaged in the budget. Government also desires to promote domestic manufacturing and increased investment in 13 crucial sectors through the PLI scheme.
Reiteration of focus towards continuous measures for digitization and simplification of GST compliances is aimed to expand the GST tax base and reduce the malpractices and tax evasions. Government’s efforts in the next 6 to 8 months towards customs duty rationalization and foreign trade policy measures is expected to provide a definite road map for inclusive economic revival and tax revenue in these unprecedented times.
The trade deficit as high as 6.5% of GDP will be financed by improving revenue collection through better compliance mechanisms, disinvestment of Public sector undertakings and market borrowing. Government spending is on expected lines like making major investment in infrastructure and financial support to the industries and agricultural sectors, discarding or amending old laws including de-criminalization of certain legislations.
The initial reaction of the stock market itself shows the optimism generated by the budget. Overall, the budget looks positive, growth oriented and expected to give a fillip to the “V’ shaped economic recovery and help achieve a GDP growth of 11 – 11.5% in the next financial year 2021-22 as opposed to 7.7 per cent contraction in the GDP growth in the year 2020-21.
Harsha Razdan, Partner and Head, Consumer Markets and Internet Business, KPMG in India said, “Overall, the budget has reinforced the government’s commitment to the welfare of farmers. With increasing MSP and steady rise in procurement, the overall payment made to farmers in FY 2020-21 against wheat, paddy, pulses and cotton amounts to INR ~280,000+ crores and the number of farmers benefitted are over 2 crores. The budget plans to provide for additional credit to farmers (~16.5 lakh crores in FY22) and for increasing credit flows to animal husbandry, dairy, and fisheries.
Further, allocation of INR 40,000 crores towards the Rural infrastructure Fund and INR 10,000 crores towards the Micro Irrigation Fund clearly re-enforce the government’s agenda to drive agricultural growth. With extension of green schemes, 1000+ mandis being integrated in e-NAM, investments in modern fishing and seaweed farming, raising of custom duties on cotton and silk and investments in storage facilities, it is clear that agriculture and allied activities will continue to gain traction in FY22. Keeping farmers’ well-being at the centre, the budget aims to enhance farmers’ income, thereby also rekindling rural consumption and providing the much-needed stimulus to growth!”
Consumer and Retail: “With the objective of reviving consumption for the economy and supporting the industry to get back to Pre-Covid growth levels, the budget this year has largely focused on a slew of tangible reforms. Rural consumption is key and the government has considered significant investments in building rural infrastructure (40000 Cr) – roads, public transport, ports and railways. Further, a number of measures rolled out in agriculture will drive rural consumption. In a bid to support MSMEs, INR 15,700 crores have been allocated. Further, rationalizing duties on raw material inputs and several other items will help encourage domestic processing.
Keeping the recently launched PLI schemes at the centre, the government has also launched the Mega Investment Textiles Parks (MITRA) scheme to enable the textile industry to become globally competitive and boost employment generation.
Extending the eligibility for claiming tax holiday for start-ups and capital gains exemption for investments in start-ups by one more year – till 31st March, 2022 will help enable entrepreneurship and help create jobs. Further, INR1,500 crores provided for digital transactions will help reinvigorate growth for a Digital India.
All in all, increasing investments in rural infrastructure, MSME development, job creation and MSME Support, farmer productivity are the big themes from this budget aimed at driving growth in the coming year.”
Harpreet Singh, Partner, Indirect Tax, KPMG in India said, ““Imposition of Agriculture infrastructure and Development Cess (AIDC), on import of certain items (like apples, peas, lentils, alcohol, chemicals, silver, cotton, etc.) to finance agricultural infrastructure and other development expenditure, has been done with the objective of increasing price of such imported products, thereby encouraging consumption of domestically grown products.
Key GST changes introduced in the budget are replacing submission of audited reconciliation with self-certification reconciliations and availability of input tax credit only on reporting of invoices/debit notes by the suppliers.
On Customs front, the FM continued to provide thrust on overhauling Customs duty structure by proposing to review more than 400 old exemptions and implementing revised Customs duty structure w.e.f 1 Oct 2021. With the larger theme of promoting domestic manufacturing in sectors such as electronics, renewable energy, capital equipment, auto parts, MSME products, the FM proposed to withdraw exemptions on products such as parts of charger, sub-part of mobiles and increase Customs duty on solar inverters, auto parts etc. Additionally, Customs duty rates were rationalized for the textile sector, chemicals sector and gold & silver. Other Customs tariff changes include changes proposed to be effective from Jan 1, 2022 on account to change in 351-line items of HSN/customs tariff
Other significant changes in Customs include: Automatic sunset clause of two years from date of notification in all new customs duty exemptions has been provided. Any existing customs notification will expire on March 31, 2023.Time bound investigations related to duty demand introduced by providing for limit of two years for completion of any proceedings which would culminate in issuance of a show cause notice. Serving of show cause notice has been made possible by posting on customs common portal.
Narayanan Ramaswamy, Partner and Sector Head – Education and Skill Development, KPMG in India said, “Covid-19 had created an unprecedented situation in the Education sector. While it was a ”washout year” for many students, it also helped in an overall acceptance of digital technologies in learning, teaching, assessment, administration and counselling. A transformational policy in NEP got announced during this year. In my view, this budget has not seized this opportunity to use this momentum to drive transformation. NEP implementation required huge financial support and the budget has completely ignored it – save some bright spots which are few and far in between.
I have been questioning the wisdom of having parallel research labs and this budget for the first time attempts to correct a 60 year old legacy by introducing glue grants for an umbrella structure that will bring synergies. I am also happy that this is one of the budgets that has taken Teacher development into consideration. The INR 3000 crores grant for promoting apprenticeship will go a long way in making vocational education more relevant and acceptable. National Research Fund saw a decent allocation of INR 50000 crores. Some of the much-needed reforms in Higher education relating to collaboration with foreign universities – twinning, dual degree etc. have been given attention.
Overall, while there are some good news, in a year where the allocation to Education should have been increased and many initiatives regarding NEP should have been funded adequately, the allocation has reduced by 6.13% to our disappointment. This could well be a great opportunity missed to give the much needed impetus to the forward looking NEP and accelerate the relevance of Indian talent in the global arena.”
Neeraj Bansal, COO- India Global and Leader – Supply Chain Re-alignment, KPMG in India said, “The development of seven mega textile parks over the next three years should help the Indian textile and apparel sector become globally competitive, lead to more investments and thereby create employment opportunities. This announcement in addition to the INR10,683 crore earmarked under Production Linked Incentive scheme is expected to reduce the higher transaction costs and transportation losses associated with textile exports, which have been eroding its competitiveness over time.
There were several announcements in the Budget today that should bolster India’s manufacturing capabilities over the near term including the setting up of seven mega textile parks, introduction of PMP for solar cells and panels, increase in customs duty on select products/ components. The expansion of the National Infrastructure Pipeline as well as the focus on R&D should positively impact nearly all manufacturing segments.
Customs Duty: The reduction of basic custom duty (BCD) on steel and copper is expected to address the concerns of the automobile industry by bringing down the overall manufacturing costs, thus spurring consumer demand. While on the other hand an increase in custom duty on import of select components is likely to provide impetus to the government’s PLI schemes, promote domestic manufacturing and make India an integral part of the global supply chain. Overall, today’s announcements on custom duty rationalization are expected to support the vision of ‘Atmanirbhar Bharat’.
Sanjay Singh, Partner, Deal Advisory, Head, Life Sciences, KPMG in India said, “The Life Sciences sector has been at the forefront while managing the COVID-19 crisis. The key tenets of the budget presented include vaccination, improving hospital and insurance coverage across the nation, investing in research and taking measures towards a cleaner and healthier India.
The sector has already benefited from the PLI scheme announced earlier in the year. The steps outlined in the budget would help kick-start the ambition for self-sufficiency, innovation and work to integrate India with global supply chains, thus helping the Indian Life Sciences sector gain competitive edge in the global landscape.
Of course, there are a few more areas that the Budget could have targeted such as direct and indirect tax deductions, policies to promote tele-medicine and upgradation of MSMEs to WHO-GMP quality norms. However, the budget has many positives for the sector and there will hopefully be a few more mini-budgets going forward, to fully unlock the growth potential of the sector.”