It is also of utmost importance that the job losses are reduced to the minimum. Hence, an extra deduction may be proposed for those taxpayers which are generating new employment avenues and providing sustainable job growth.
The year 2020 has been an unusual year for the world in more than a century. While this decade had witnessed other events, which have impacted the world economy like the sub-prime crisis, the economic slump being experienced by the world at present has been unprecedented in every way.
Looking from an Indian context, as per research reports, while the Covid-19 induced lockdown and further restrictions have led to record job losses and salary cuts, the resultant decline in demand has further impacted the jobs, leading to a vicious cycle of negativity. Due to an unprecedented 29% quarterly drop in the GDP growth and the resultant shortfall in the tax collections, there is an ever-increasing pressure on the Government to fill its coffers so that the industries can be incentivised to revive the economy at the earliest.
While some industries like pharmaceutical, e-learning and digital technology have been fortunate enough to witness a growth in demand during these stressed times, others like aviation, retail, tourism, realty, hospitality, entertainment, etc. have been badly impacted. While the Indian government as well as RBI have been monitoring the issue closely and have periodically announced various reliefs and measures during the year to help industries survive through the difficult times e.g. loan moratorium, steps to provide easy access to working capital, etc., some sectors which bore the brunt of the pandemic more than the others, undeniably require special attention.
With the Budget 2021 to be presented by the Finance Minister just about a month away, all eyes are on the tax and other finance proposals to be included in the Finance Bill.
The FM has recently held pre-budget virtual consultations with various stakeholders, including economists, civil society, industry bodies as well as the farmer organisations, looking for suggestions for reviving the economy.
Before expecting any benefit from a tax perspective, it is also important to realise that the tax rates for companies and individuals were reduced last year only, and there is a limited room available for any further blanket reliefs of this kind. Hence, while any reduction in the tax rates may not be feasible, other benefits may have to be granted to ensure the growth prospects of the economy. In order to kick-start the recovery phase, it is important that certain tax provisions are eased out to support the pandemic stressed taxpayers. For instance, as the financial year 2020-21 will see losses being incurred by a lot of companies, it may make sense for the time period available for carrying forward and set off of business losses be extended from the existing 8 years to 10 years as a one-off opportunity so that the impact of Covid 19 does not come in the way of business cycles.
Further, the stressed sectors should receive certain special incentives like tax holidays, the extra weighted deduction for enhancing capital investment or expenditure in identified avenues. The pandemic stressed sectors may be provided with a higher depreciation.
It may also be a good idea to provide enhanced tax benefits for taxpayers investing in wellness programs and other initiatives to support their employees.
To give effect to the resurrection of sorts for MSME sector, the government must stimulate job creation through additional tax incentives for greenfield projects, reduction in indirect taxes like lower stamp duty and GST on capital investments, greater incentives for additional job opportunities, etc.
The MSME sector has been at the forefront for long when it comes to new job creation and has been at the receiving end of negative impact due to pandemic imposed lockdown. The return of migrant labour to their hometowns during the lockdown has added to the woes of the sector. The sector has been in dire need of help and it would serve the government well if Budget 2021 brings in some relief measures. Thus, there is a case for slashing the tax rates for taxpayers like companies, LLPs and other organisations operating at MSME level, at least for the near future.
It is also of utmost importance that the job losses are reduced to the minimum. Hence, an extra deduction may be proposed for those taxpayers which are generating new employment avenues and providing sustainable job growth. Alternatively, it may be proposed that the scope and ambit of deduction under section 80JJAA of Income Tax Act, 1961 which is provided for employing workmen, be extended by increasing the existing salary limit and reducing the number of days requirement.
The export-oriented units may be given a push by giving tax benefits, as India seeks to capture the export market and projects itself as a suitable alternative manufacturing destination to China.~
However, before expecting any benefit from a tax perspective, it is also important to realise that the tax rates for companies and individuals were reduced last year only, and there is a limited room available for any further blanket reliefs of this kind. Hence, while any reduction in the tax rates may not be feasible, other benefits may have to be granted to ensure the growth prospects of the economy.
Separately, from the perspective of providing ease of doing business, there is a need to provide a stable regulatory environment, especially for international investors. Therefore, certainty in the tax provisions would go a long way in making India as a suitable foreign investment avenue. It may also be a good idea for the tax authorities to go slow on their assessment and recovery initiatives and give the industry some time to get over this unprecedented crisis and move back to the more familiar growth trajectory.
About the author: SR Patnaik, Head – Taxation; with support from Reema Arya, Consultant, Cyril Amarchand Mangaldas & Co.
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