Budget 2019: What India Inc got from Modi 1.0, and what it didn't
The first term of Modi government was a mixed bag for India Inc comprised of some surprises and reliefs.
The first term of Modi government was a mixed bag for India Inc. First, both small and big businesses were jolted by demonetisation and then they were forced to scramble to keep up with the ever-changing Goods and Services Tax (GST).
Amidst all this, Jaitley's budgets brought in a host of big-ticket reforms for businesses, amongst which the much-needed tax relief to micro, small and medium enterprises deserves a special mention.
For big businesses though, Jaitley left a lot to be desired in terms of reducing corporate tax.
2014-15: Jaitley era begins
In his first budget, Jaitley made a case for increasing the foreign direct investment (FDI) limit in insurance and defence manufacturing from 26% to 49%.
He proposed that the Foreign Investment Promotion Board (FIPB) would provide the platform for FDI routing without any hassles.
2015-16: PoEM, Mudra & a mixed tax blessing
The next year's budget (2015-16) was applauded by big businesses as Jaitley promised to initiate a process for the next four years on phased reduction of corporate tax from 30% to 25%. Its overall impact, however, was far from satisfactory, as it did not benefit every private business.
In the same budget, he also introduced the concept of PoEM, or the place of effective management — a significant anti-tax evasion measure used for finalising the tax residency of businesses or companies. As per PoEM rules, a company would be considered as an Indian resident and had to pay taxes on its global income, if its effective management was residing in India.
The 2015-16 budget also introduced the Micro Units Development Refinance Agency, or MUDRA Bank — a much-needed refinance agency to provide credit support to MSMEs — with a special focus on businesses owned by SC/ST entrepreneurs. Initially, a corpus of Rs 20,000 crore was kept aside for MUDRA, along with a credit guarantee corpus of Rs 3,000 crore. Jaitley also brought in a composite cap (FDI + FPI) to simplify the calculation of FDI limit in sectors where FDI cap was applicable.
2016-17: Big boost for small cos, with a rider
In Budget 2016-17, Jaitley provided a big relief to local businesses which had total turnover/gross receipts up to Rs 5 crore by reducing the corporate tax to 29% (including applicable surcharge and education cess). Besides, an option was given to manufacturing companies which were set up after 1 March 2006 to avail the reduced tax rate of 25%. There was a big rider though — this rebate could be availed by only those companies which were not claiming any profit.
The budget further eased FDI norms in such sectors as pension, insurance, asset reconstruction companies (ARCs) and stock exchange. Jaitley also brought in new documentation norms for base erosion and profit shifting (BEPS) as a fix to aggressive tax planning by foreign multinational companies. New documentation had three layers of information in which multinational companies had to disclose their details on number of employees, profits and taxes paid in every country, where they were operating.
On similar lines, Jaitley also proposed an equalisation levy — a 6% tax — on ad revenues earned from India by the MNCs. This proposal finally enabled the government to tax digital advertising by big corporations such as Facebook and Google.
2017-18: FDI on the fast lane
In Budget 2017-18, Jaitley proposed the abolition of the FIPB to pave the path for more FDI policy reforms. This step proved significant in removing the roadblocks for foreign investors as now they could take their proposals to the relevant government departments that had been empowered to clear FDI proposals in consultation with the Department of Industrial Policy and Promotion (DIPP).
Jaitley further reduced the corporate tax rate to 25% (plus applicable surcharge and education cess) for Indian companies with total turnover/ gross receipts in the previous year of not more than Rs 50 crore.
2018-19: Tax cut covers more ground
In Budget 2018-19, which was Modi government's last full-year budget before the general elections, Jaitley further broadened the reach of the corporate tax cut — bringing under its ambit companies with turnover of up to Rs 250 crore.
This tax cut would prove beneficial to almost 99% companies which had filed taxes, Jaitley asserted.
This cut was on the same lines as the one that had benefited companies with a turnover of up to Rs 50 crore.
The Interim Budget
In the February Interim Budget, stand-in finance minister Piyush Goyal did not make any big changes in the corporate tax structure as it falls in the domain of a full general budget.
He, however, brought some cheer to MSMEs by proposing that 25% of sourcing for government projects will be from these firms, of which 3% will be from women entrepreneurs.
There was a significant change on the GST front too — to further simplify the process for companies, Goyal announced that businesses comprising over 90% of GST payers will be allowed to file quarterly return.