Budget 2015: Arun Jaitley to unveil slew of measures, torque up investments

NEW DELHI: Finance Minister Arun Jaitley’s much-anticipated Budget is expected to unveil a comprehensive package of measures to lift investment sentiment and turn the country into a preferred destination for foreign capital.

An increase in customs duties on select products to encourage domestic manufacturing, changes in the minimum alternate tax (MAT) for foreign portfolio investors and the implementation of some recommendations of the Partho Shome panel on indirect transfers are likely prospects.

The General Anti-Avoidance Rule ( GAAR), introduced in the 2012-13 budget and then delayed until the April 1, 2016, assessment year, is expected to be deferred in line with demands from industry.

“The idea is revival of investment, drawing investment into domestic manufacturing sectors and removing hurdles,” said a senior government official. FM Jaitley will present the Union Budget in Parliament on February 28.

A revival in investment is critical to stronger economic growth, but the data does not show any conclusive pickup in this respect. Gross capital formation rose only 3% in FY14 after contracting 0.3% in the year before.



Experts said any move in this regard would be welcomed by investors.

“Private investment is yet to pick up,” said DK Joshi, chief economist, Crisil. “Some measures are required.”

The team drawing up the Budget is also being careful to avoid potential traps, such as the retrospective amendment on taxing indirect transfers in the FY13 budget, which could undermine investment sentiment.While a final decision would be taken closer to the Budget, the government is also taking a comprehensive look at the impact of free and preferential trading arrangements on a number of sectors and will see if there is scope to bring about a correction in the duty structure as also clean up the taxation structure as it relates to foreign investors.

The finance ministry is also deliberating an improved investment allowance, a scheme that was unveiled in Jaitley’s first Budget. Another issue that is being examined closely is the levy of minimum alternate tax (MAT) on foreign portfolio investors, some of them having received notices from the tax department after tribunals backed the imposition of the levy in some instances.

The government could look to further exorcise the demon of the retrospective amendment on indirect transfers that had rattled investors.

“A positive act of the government on some of the big-ticket outstanding tax issues...would help boost confidence of foreign investors in India,” said Sanjay Sanghvi, partner at law firm Khaitan & Co.

The suggestions by the Shome panel that could be considered include keeping share transfers in listed companies out of the tax ambit and a clear definition of what construes ‘substantial’ share transfer for tax purposes to encourage private equity.Measures to boost infrastructure funding and deepen the corporate bond market are also being discussed and could form part of the Budget-.The government has already taken steps to ease many tax-related concerns, raised foreign direct investment limits in some sectors and issued a series of ordinances to address legal issues. The government has also been chipping away at red tape to make it easier for investors to do business in the country.