The government may consider incremental tax benefits to increase the net disposable income of the citizens to boost demand when it tables the Union Budget FY23 in the Parliament on February 1.
In a report, brokerage firm KR Choksey said that the government is expected to target infrastructure spending further to create a multiplier effect and increase job opportunities.
Moreover, it may introduce structural reforms and boost privatization to attract long-term capital from foreign institutional investors (FIIs). The government may also consider incremental tax benefits to increase the net disposable income of the citizens to boost demand.
As per the report, the government will focus on tax compliance by being more vigilant. Also, there might be some hike in GST rates of some selected products and services by the GST Council to boost GST revenue further.
There might be some changes in InvIT and REIT tax structures to bring long-term capital gains treatment at par with other asset classes.
“With robust direct tax collection, we do not envisage any tinkering with the existing income tax slabs, though some incremental tax benefits by the government cannot be ruled out,” the report said.
“Given the limited headroom for monetary policy action, fiscal measures have become imperative, and we expect the government to address ‘demand-side factors in the upcoming Budget,” it added.
This Budget is widely expected to continue with the measures announced in the previous budgets like Aatmanirbhar Bharat, Make in India and PLI schemes, etc. It said that one could expect more standards focusing on boosting consumption and helping revive private sector investments.
The brokerage expects aggressive asset divestitures for FY23 with a disinvestment target of Rs 2-2.1 trillion, public sector reforms in the form of privatization, recapitalization & improving corporate governance, reduction in the burden on tax compliance requirements for startups, and stress asset funds to address banking sector asset quality aspects.
Among the sector-specific expectations, for auto — Reduction of GST rate on two-wheelers; re-introduction of the depreciation scheme, financials, setting up of refinancing window for NBFCs; focus on digital initiatives.
For pharma — Reinstatement of weighted tax deduction at 200 percent of inhouse R&D spending
For consumers — GST/import duty relief to curb high inflation; implementation of National Retail Policy
For insurance — Increase in deduction limit under 80C & 80D; GST rate reduction
For IT/technology — Digital initiatives; incentives for 5G rollout
For agriculture/chemicals — Introduction of PLI scheme; levy of import/anti-dumping duty
For infra/capital goods/cement — Higher allocation to PMAY; boost infrastructure financing avenues
The government’s focus will support the Agri economy to improve farmers’ income. Credit is a critical input in achieving higher farm output. Institutional credit will also help delink farmers from non-institutional sources where they are compelled to borrow at usurious interest rates, the report said.
Usually, farm loans attract an interest rate of 9 percent. However, the government has been providing interest subvention to make short-term crop loans available at an affordable rate, thereby helping to boost farm output.
The government fixes annual agriculture credit, including crop loan targets for the banking sector. The agricultural credit flow has increased consistently over the years, exceeding the target set for each fiscal. Therefore, the report said that the brokerage expects a similar trend to continue going ahead in the upcoming Budget.
In the Budget, the government is expected to announce more steps to achieve its infrastructure investment target of Rs 111 trillion as per the NIP (National Infrastructure Pipeline).
More clarity is awaited on the current status of the NIP, its financing avenues, and its CAPEX phasing over the next few years. The government is likely to increase its gross budgetary support towards the infrastructure sector, focusing on roads, railways, and urban infrastructure segments.
To expedite projects like high-speed rail (including Bullet trains), Sagar Mala, intelligent cities, inland waterways developments, etc., the government should provide some dedicated allocations towards these projects in the Budget. The report said that an increased percentage for NHAI will help achieve Bharat Mala project targets.