There has been a considerable economic slowdown in recent times and several industries are suffering, leading to businesses shutting down and job losses. Acting upon alleviating the economy, the government has been working on several measures such as income tax relief for companies, better flow of credit for exporters, and so on. The effect of these measures on the fiscal deficit is being analysed before they are announced.
Sectors such as real estate, automobile, and Fast Moving Consumer Goods (FMCG) are recognised as the ones that are heavily affected. Based on the current situation, the government has sector-specific relief packages in planning. They could be announced soon after permission from the Prime Minister’s office.
It is said that Finance Minister Nirmala Sitharaman is reviewing the surcharge, long-term capital gains tax, and dividend distribution tax (DDT) applicable to foreign portfolio investors (FPI) structured as trusts.
Similarly, the new direct tax code is expected to recommend a corporate tax rate cut to 25% for all companies. The income tax department would not welcome this recommendation as they cannot reach their tax collection goals if it is implemented.
The fiscal deficit of 3.3% must be increased in order to accommodate the reduction in corporate tax rates. This decision cannot be taken by the finance ministry solely.
Also Read: RBI slashes repo rate to improve economy output and boost consumption
When it comes to the relief to FPIs, the government may provide a one-time capital gains tax waiver for foreign investors who wish to convert to trusts. The recent Budget has risen the tax rates for taxpayers with income above Rs.5 crore by 22%.
Consequently, long-term capital gains tax on FPIs have also increased from 12% to 14.25% and small-term capital gains tax have increased from 17.9% to 21.4%.
The Reserve Bank of India (RBI) has proposed to loosen the grip of priority-sector lending norms for exporters. This move would encourage and boost exports. The current norm of getting credit facilities for businesses with a turnover exceeding Rs.100 crore is speculated to be scrapped to extend the benefit for a larger number of exporters. The credit limit is also expected to be raised from Rs.25 crore to Rs.40 crore in order to welcome more exporters.
These proposals made to raise the economy are yet to be officially confirmed. However, the government has been making efforts for the betterment of the nation’s economy. Based on the recommendations of the direct tax code, the schemes may get a deeper insight on what recommendations could be profitable.