The government has been very vocal about simplification of the tax structure and they have demonstrated that for the corporate sector through a gradual progression towards a simple rate and in some sense setting a sunset date for exemptions.
In that light, we could see a similar path being taken on the personal taxation front. This could potentially mean simplification of the ways income is taxed and that in turn is likely to benefit investors and the mutual fund industry.
There are obviously more populist expectations of increasing the 80C investment limits, reducing long term capital gain horizon etc. Given the Budget constraints, we are not that hopeful of the same but if it comes, it could very well be the one demand catalyst to increase savings and consumption in the economy.
Pre- Budget Expectation for Economy as a whole
Given the country’s GDP growth is at a decadal low of around 5 percent, the upcoming Budget will be a very important policy document, which charts a path towards the government’s vision and focus on economic growth. While interim measures like corporate tax cuts have been undertaken by the government to revive investment-led growth, we will watch out for measures to revive both consumption and investment led growth.
In our limited understanding, the key measures to watch for are:
1) Trend of government spending for capital expenditure – especially given that there is likely slippage of divestment targets from this year to the next and that can provide a higher room for increased capital spending in FY21.
2) Sector specific policies on import substitution and export growth.
3) Increase in infrastructure, rural and social spending through innovative structures, attracting greater foreign participation in infrastructure annuity assets.
4) Power sector reforms, particularly on the distribution side.
5) Strategic divestments and roadmap towards the same.
6) Further simplification of tax structure and administration.
7) Personal income tax changes, if any, to increase consumption.