Statement from Girish Vanvari, Head of Tax, KPMG in India
FIRST REACTION TO BUDGET
Budget 2017 sticks to fiscal prudence with a fiscal deficit of 3.2% whilst balancing enhanced spending in several socio-economic schemes and different aspects of economic development. There is some cheer for individuals as tax rates for income between 2.5 lakhs to 5 lakhs has been reduced from 10% to 5%. However, an additional 10% surcharge has been introduced on income between 50 lakhs and 1 crores which is a dampener for high networth individuals. MSME with turnover upto Rs 50 crores will benefit from lower tax rate of 25% and there are some concessions to boost the real estate sector.
The trust of the budget is to enhance the tax base and move towards digitization through several amendments in the act. No change in capital gains tax regime for listed stocks and clarification on non-applicability of indirect transfer rules to FPIs and AIFs will be a big relief to the investors and could trigger an immediate rally on the stock markets. One can argue that the Budget could be more ambitious at the cost of fiscal prudence.
However, in global macroeconomic backdrop, the calibration in the Indian economy post demonistation and much awaited GST which is now on anvil, Budget 2017 is stable fine balancing act, with fiscal prudence, directional spending and no surprises on the taxation front which should lead the country to a sustainable growth path.
Statement 1 from Sachin Menon, Head of Indirect Tax, KPMG in India
FIRST REACTION TO BUDGET – INDIRECT TAX BUDGET PROPOSITIONS
Hon’ble Finance Minister presented the Union Budget today in the backdrop of world economic and political uncertainty following the change in US policies and impact of several government initiatives such as demonetization, GST implementation, etc. It seems the focus of the
Budget announcement seems to be on expanding the tax base and therefore increasing collection rather than increasing the tax rate.
Union Budget 2017 was unique and path breaking in its own way and the theme of the budget concentrated around promoting agriculture and rural sector, digital economy, infrastructure growth, reforms for key sectors such as agriculture, real estate, financial sector, small and medium industry segment. The increased government spending on infrastructure and rural sector will spur demand and kick start the economic growth.
The highlights of the budget include the efforts to bring transparency in political funding, tax reduction for small and medium enterprises and middle class. However, it seems SOPs to industry is far below expectation.
Post conclusion of 9th GST Council meeting, the Finance Minister had made the announcement that the practical date to implement the GST is likely to be 1 July 2017. Industry was expecting the definitive road map to be announced during the Budget speech for GST implementation. Though, the Finance Minister has projected the strong commitment to implement the GST as per schedule, no concrete date has been announced for GST implementation. It appears that the work towards the finalization of GST law and IT system is in progress as per schedule. Excise and Customs department is likely to step up the GST awareness program for all the stake holders from 1 April onwards.
Though, no concrete date has been committed during the Budget speech for GST implementation, the Finance Minister has reiterated the Government’s commitment in ushering the GST implementation.
Statement 2 from Sachin Menon, Head of Indirect Tax, KPMG in India
"The budget seems to have given more thrust towards increasing the tax compliance by broadening the tax base rather than raising tax rates, which brings fresh breeze of air to the budget process"
"The budget estimates projects a revenue growth of 8.8% in indirect tax revenue as opposed to 15.3% growth in direct tax revenue without any major increase in the tax rates. That shows the confidence of the government to enforce stricter compliance post demonetisation and GST implementation "
"The ripple effect of budgeted increase in spending in the rural and infrastructure sector expected to spur economic activity across the country. This will help increase consumption, demand for goods and services and there for more tax collections"
Statement from Santosh Dalvi, Partner – Indirect Tax, KPMG in India
FIRST REACTION TO BUDGET ANNOUNCEMENT
In one of the trend setting event, the Union Budget 2017 along with Railway Budget was presented together today i.e. 1st February instead of the usual date of February 28 with overall objectives to transform, energise and clean India and the Budget was heavily focused on Rural and Infrastructure sector. The FM has strongly supported demonetization and GST implementation steps, with a belief that it would help in removal of corruption, control inflation, generate employment and stimulate growth in the country. The budget estimates 8.8% growth in indirect tax revenues as opposed to 15.3% growth in direct tax revenues, prima facie without imposing or increasing rate of taxes. This means that the focus is on increased compliance by broadening the tax base rather than raise the tax rates.
With the likely implementation of GST from 1st July, the FM has proposed minimal changes in Indirect Tax. While there was an opportunity to eliminate some of the Indirect Tax redundancies and bring changes which would be one step closer to implementation of GST, the expectations remained partly fulfilled.
Tax Administration of “Honoring the Honest” coupled with quality data analysis of Cash deposit on account of demonetization, Personal Income Tax benefit, reduction in Corporate Income Tax rate for MSME with turnover upto INR 50 Crores, rationalization of Customs & Excise duty rate for promoting “Less Cash” economy, correcting the Inverted Duty Structure, integration of Oil PSU, increased in MSIPS budget allocation, abolition of FIPB, proposal to introduce new FDI Policy and continuous digitization policies, etc. will significantly increase tax compliance, broaden the tax base and boost Make in India initiatives.
Overall, the Budget proposals seems to be in the right direction and efficient implementation of such proposals, would be the key to accelerate growth and improve Tax compliance in the country
Statement from Dr. Jaijit Bhattacharya, Partner – Strategy and Economics, KPMG in India
ON INFRASTRUCTURE SECTOR
Budget 2017 has focused on infrastructure, including digital infrastructure, increasing private investments, increase consumption and strengthen social sector and safety net, including health and education. The key feature of the budget appears to be several declared deadlines for outcomes such as elimination of TB by 2025, removal of unmanned crossings in railways by 2019 etc. This makes the budget more accountable and its impact and progress can be tracked over a period of time. The budget appears to be able to achieve its stated objectives and would help in growth of consumption and infrastructure development.
Statement from Naveen Aggarwal, Partner- Tax, KPMG in India
ON M&E SECTOR
Amidst high expectations of India Inc., the FM presented the Union Budget 2017. The Budget was based on broad themes of curbing black money, boosting individual spending, ensuring transparency and providing much needed impetus to agricultural and rural sector, infrastructure and digital economy.
Similar to last 2 years, the Budget did not bring much respite or specific announcements benefiting M&E industry. While the expectation of overall reduction in corporate tax rate and abolition of MAT was given a miss, the proposal to reduce corporate tax rate for MSMEs to 25% (having turnover upto INR 50 Crs.) and increasing the MAT credit entitlement (from 10 to 15 years) is a welcome move and will benefit medium scale service companies in M&E sector.
While the announcement to abolish FIPB in light of successful e-governance was surprising, further liberalization in FDI policy will be keenly watched in context of M&E industry. Lastly, the FM provided much needed assurance on roll-out of GST as per schedule, confirming GST council finalizing majority of its recommendations.
Statement 1 from Nilaya Varma, Partner and Head, Healthcare, KPMG in India
ON HEALTHCARE SECTOR
Many of the targets set by the Government for healthcare is very welcome and so is the focus on wellness, creating more clinical staff and leveraging existing assets. However, we need to see what is the real extra allocation for making these announcements happen… would have appreciated comment on plan for universal healthcare and infrastructure status.
Statement 2 from Nilaya Varma, Partner and Head, Government Services, KPMG in India
ON TOURISM SECTOR
The proposal for creating 5 tourism zone is welcome, something I have advocated for a long time. It would allow the government to focus limited central investments into our best tourist destination thus allowing world class experience. We believe this will ensure large inflow of foreign tourist. Despite India’s potential, we get a very meagre inflow of foreign tourists.
Statement 3 from Nilaya Varma, Partner and Head, Government and Healthcare, KPMG in India
ON AGRICULTURE SECTOR
Model Contract Farming Law, if designed well, has the potential to impact the entire farm value chain including better realization to farmers, bring new investments in farm infrastructure and reduce middlemen. Incentivization needs to be built for states to implement this fast in letter and spirit.
Statement 1 from Neeraj Bansal, Partner and Head of Real Estate, KPMG in India
ON INFRASTRUCTURE STATUS TO AFFORDABLE HOUSING
By granting Infrastructure status to affordable housing, the Government acknowledges that affordable housing industry is an important driver of the economy. Affordable housing developers will now be eligible for several Government incentives, subsidies, tax benefits and most importantly institutional funding. The status could also mean that the Government may release land specifically for affordable housing development in central locations of major urban centres in India.
Statement 2 from Neeraj Bansal, Partner and Head of Real Estate and Construction, KPMG in India
ON LAND AND BUILDING
FM has reduced the holding period for land and building from 3 years to 2 years for long-term capital gains purpose. This would help improve invest ability in properties in comparison to shares and stocks where the period is 1 year.
Statement 3 from Neeraj Bansal, Partner and Head of Real Estate and Construction, KPMG in India
REAL ESTATE SECTOR
The announcements in Union Budget 2017-18 provided the much necessary push to housing affordability. Host of incentives to propel demand, streamline direct tax related issues, and promoting low-cost housing in both urban and rural regions were announced which were in-line with our expectations.
Among the most important announcement was granting of infrastructure status to affordable housing development – a long pending demand of the sector. It has been complemented by increasing allocation to rural housing programme by more than 50 per cent.
By granting Infrastructure status to affordable housing, the Government acknowledges that affordable housing industry is an important driver of the economy. Affordable housing developers will now be eligible for several Government incentives, subsidies, tax benefits and most importantly institutional funding. The status could also mean that the Government may release land specifically for affordable housing development in central locations of major urban centers in India.
The budget provided limited incentives on personal income tax side for income of upto INR50 lakh. Introduction of surcharge of 10 per cent on income above INR50 lakh is expected to reduce disposable income further. Further, the budget was also silent on incentives to boost REITs, rental housing and commercial real estate asset.
Statement 4 – Neeraj Bansal, Head of Real Estate and Construction, KPMG in India
ON PROPERTIES
FM has reduced the holding period for land and building from 3 years to 2 years for long-term capital gains purpose. This would help improve invest ability in properties in comparison to shares and stocks where the period is 1 year.
Statement from Santosh Kamath, Partner and Head of Renewables, KPMG in India
ON SOLAR
The push on Phase 2 of the national solar programme of 20,000 MW reiterates the Government’s commitment to this sector. The move to expand solarising of the railway stations also sends an encouraging signal to rooftop and distributed solar.
Statement from Biswanath Bhattacharya, Partner, Infrastructure and Government Services, KPMG in India
ON RAILWAYS SECTOR
The set of initiatives announced seem to acknowledge the challenge that Railways is losing share in both freight and premium passenger services to alternate modes of transport, and hence an integrated approach to improving safety, cleanliness and passenger comfort, and higher levels of service to freight customers through end to end services have been introduced in this budget. The introduction of accounting reforms will also facilitate better management control systems, to track performance improvement, of the Railways.
Statement 1 from Narayanan Ramaswamy, Partner and Head of Education and Skill Development, KPMG in India
ON EDUCATION AND SKILL DEVELOPMENT
The focus on Education and Skill Development in this budget looks at best cursory and customary. There are some bright spots with the set-up of Innovation fund for local innovation in school education, more colleges will be identified for autonomous status and a national testing agency for all entrance exams. There are some announcements of new schemes for leather and footwear. The outlay is not known for these schemes. The 4000 crores for SANKALP targeting 3.5cr youth, Rural Mason training scheme targeting 5lakh youth by 2022 are encouraging. Given the mammoth requirement for skilling and urgency of the need, it is disappointing to see this budget virtually ignoring the support and encouragement needed for skill development and vocational education.
Statement 2 from Narayanan Ramaswamy, Partner and Head, Education and Skill Development, KPMG in India
It is encouraging to see the budget seems to have brought the cause of underprivileged to the focus again. The 500cr for ICDS scheme, 20,000cr allocation to NHB for re-financing affordable housing are much needed. The allocation of 1,84,632crore for women and child reform and 52,393crores for SC, 31,920cr for ST all point towards the clear intention of taking all sections of people along in the economic growth. FM has also repeatedly spoke about outcome based monitoring and allocation and it is very important that this approach is followed in allocation, monitoring and evaluation of the budgeted money in these areas.
Statement from Anish De, Partner and Head of Oil and gas, KPMG in India
ON OIL & GAS
Extension of MAT credit carry forward period to 15 years is a positive for all infrastructure players. Especially considering the large forthcoming investments in Oil & Gas, the measure will serve to de-risk some of the infrastructure projects in the sector.
Reducing the basic custom duty in LNG to 2.5% will make it more affordable for various applications. Industrial and city gas consumption will benefit. Will further climate goals under COP 21.
No announcement on oil industry development cess in main budget speech. There was an expectation that it be reduced.
Two additional strategic reserves announced. This is of considerable importance for the energy security of the country and also for the oil industry.
Statement from Amarjeet Singh, Partner – Tax, KPMG in India
ON THE PROPOSAL TO DISMANTLE FIPB
The proposed dismantling of the FIPB indicates that almost all sectors attracting FDI will move into automatic approval route. However, what needs to be ensured is that the balanced sectors, which are not part of the automatic route, are able to get clearances under a single window mechanism.
Statement 1 from Jaideep Ghosh, Partner, KPMG in India
ON TELECOM SECTOR
Union Budget aims to boost Digital Economy, which will have a positive impact on the telecom sector. Additional outlay of Rs 10,000 crore for BharatNet and creation of ‘Digi- Gaon’ a definite positive to Broadband penetration; however, BharatNet implementation track record needs to significantly improve for benefits to reach rural India. MSIPs benefits for domestic manufacturing of mobile devices & components will strengthen ‘Make in India’ and add to employment.
Broadband penetration has a direct impact on economic growth, employment, innovation & prosperity. Strong push on transport connectivity, and healthcare and education through digital media, are likely to have significant long term impact on the telecom ecosystem.
Statement 2 from Jaideep Ghosh, Partner, KPMG in India
ON IMPACT ON TOURISM AND HOSPITALITY SECTOR
Recognising the significance of the tourism sector as a key generator of direct as well as indirect employment in the country, the Union Budget announced measures to promote the sector. The centre plans to develop five special tourism zones in partnership with the state governments, and launch the second edition of the ‘Incredible India’ campaign to promote Indian tourism globally. Significant emphasis on augmenting transport infrastructure and railway safety & convenience would have positive impact. However, these measures are incremental in nature, and are expected to provide only a moderate boost.
Nonetheless, reduction in taxes levied on small and medium businesses is likely to provide some comfort factor to the sector, which is currently adversely affected by a relatively high taxation in comparison with other tourism-focussed countries. Further, proposed relaxation in labour laws is also likely to provide relief to the labour-intensive sector. In conclusion, the tourism and hospitality sector would need greater support from the government to thrive in an increasingly competitive domestic as well as international markets.
Statement from Atul Gupta, Head – Cyber Security, KPMG in India
ON CYBER SECURITY
Establishing cyber and computer emergency response teams shall support addressing cyber threat and also facilitate increased adoption of digital economy. However, this needs to be implemented effectively with participation from all stakeholders, including regulators and LEAs to ensure that cyber response works seamlessly.
Statement from Neha Punater, Partner and Head of Fintech, KPMG in India
ON FINTECH
The Govt. has continued the demonetization initiative to promote digital and cashless payments with a slew of initiatives in the budget. It has addressed all the components – from incentivizing the customers and merchants for using BHIM to furnishing of PAN for cash transactions over Rs. 3 lakhs to promoting infrastructure creation by duty exemption on POS machines and iris readers.
The Aadhaar enabled merchant payments would ensure that supply side is also addressed for a digital transaction. We see this a definitive boost for the digital economy.
Statement from Manish Aggarwal, Partner and Head of Energy and Natural Resources, KPMG in India ON INFRASTRUCTURE SECTOR
Budget 2017 augments the already established mode of using government budgetary spend to boost infrastructure in an overall tepid private sector investment sentiment. Integrated Transportation focus including railways, metros, multi-modal transport, highways is transformational and has the potential to launch economic growth into the next orbit. Renewed volatility in oil markets enunciated a response by way of creation of integrated oil majors which would aim at creating strategic oil ownership. In parallel, budget focused to enhance renewable energy capacity by launching another 20 GW solar mission. Signals were also made to revive PPPs by introducing amendments to arbitration & conciliation act to address disputes and launching a fresh PPP pipeline in airports and railways
Statement from Manish Aggarwal, Partner and Head of Energy and Natural Resources, KPMG in India on Budget 2017 Impact on Energy Sector
ON OIL & GAS
Overall intent for the energy sector has been progressive and transformational, especially in few key aspects. Oil imports constitute a lion’s share of India’s overall imports and the proposed creation of an ‘Integrated Oil Sector Major’ creates that fire-power for India to own and invest in a stable oil supply chain. Budget further enhanced scope of strategic oil storage by announcing creation of another 2 facilities targeting a cumulative capacity of 15.33 MMT.
Budget further lends execution focus to the commitments made by the Government towards having a more sustainable growth from an environment standpoint.
- The focus on renewable energy gained another fillip as an additional 20,000 MW was announced under the National Solar Mission.
- Solarising Railways will give fillip to roof top space going forward
- Halving of Basic Customs Duty on LNG from 5% to 2.5% would support stranded gas power plants. It would also encourage mid-stream infrastructure creation from LNG terminals to gas pipelines and city gas distribution networks.
We need to give the government the credit of ‘walking the talk’ on 100% village electrification. The Finance Minister reiterated achievement of the set goal by May 1, 2018. This achievement, followed by push going ahead for household electrification program would likely trigger the latent demand for power, which is much desired.
Enhanced focus on railways transforming from a single-solution to a multi-modal end to end solution provider would hopefully address coal transport and pilferage issues faced by power plants.
Easing of FDI regulations i.e. proposed abolition of FIPB, extension of concessional withholding tax on ECBs would further enable foreign investors to invest in the sector.
In so far as the misses are concerned, we would have been heartened to see a direct head-on tackling of stressed power assets. The Economic Survey released yesterday ignited the hopes by talking about very innovative solution by creation of Public Asset Rehabilitation Agency (PARA). However, while the Finance Minister talked about recapitalizing the banks to the tune of INR 10,000 Crore, the Budget was silent about a direct measure to address this big challenge facing the sector. May be we may see a post budget follow on around PARA.
Statement -1 from Naveen Aggarwal, Partner and COO – Tax, KPMG in India on Telecom sector
ON TELECOM
Budget 2017 has its fair share of hits and misses for telecom sector.
The big hit appears to be the Government’s commitment to strengthening India’s telecom network with the allocation of INR 10,000 crores to the ambitious Bharat Net project. The fact that nearly 155,000 kms of Optical Fiber has already been laid down speaks volumes about the progress of the project. Connecting 150,000 gram panchayats will be a giant leap towards fulfilling the Digitization vision of the Government and will provide the necessary boost to all the players in the telecom ecosystem.
Some of the tax incentives like the increase in the carry forward of MAT credit from 10 to 15 years, reduction in the corporate tax rate by 5% for MSMEs (turnover of less than INR 50 crores) are welcome moves for mid-size telecom players. As expected, the FM has not proposed significant changes in the Indirect tax regime in view of the impending GST. Higher allocation for M-SIPS incentives can be a good news for handset manufacturing companies. However, increase in the SAD on PCB for manufacture of mobile handsets is likely to increase the price of the handsets.
Some key misses include clarity on retro-amendments, withholding tax on spectrum trading and recharge voucher etc.
Statement 2 - from Naveen Aggarwal, Partner and COO - Tax, KPMG in India on Impact of Budget 2017 on Technology/ IT sector
ON TECHNOLOGY & IT
Given Government’s focus to promote digital economy, the Budget proposals contain slew of measures to promote digitization and curb black money.
Proposals to launch SWAYAM platform to enable students access online courses, launching of 2 new schemes to promote usage of BHIM App for online payments, introduction of Adhaar enabled payment system and an ambitious target to have 2,500 crore digital transactions across various platforms in the next year, are steps in the right direction. To enable this the FM has also made additional fund allocation to the Government’s broadband connectivity project.
Reduction in presumptive tax rate on digital transactions and reduction in import duty rate of digital payment equipment’s and components, clearly underlines Government’s intention to promote digital economy and curb black money.
However, the long standing demand of reduction of MAT impacting the IT/ITeS sector has been deferred by the FM for the time being, though with a limited relief of increase in MAT credit period from 10 to 15 years.
Statement from Dr. Waman Parkhi, Partner – Indirect Tax, KPMG in India on announcements related to Indirect Taxation
ON INDIRECT TAX
With the GST expected to come in another four months, it was expected that status quo on the Indirect tax side would be maintained. Accordingly, no change is proposed in overall tax rates of Customs Duty, Excise Duty or Service tax. However, with an intention to push towards digital economy post demonetization, customs duty and excise duty rate of equipment used for digital payments and parts and components for their manufacture have been exempted. As usual, there is slight increase in Excise duty rates on Cigars and tobacco products to discourage their consumption. Repeal of Research & Development Cess Act from 1 April 2017 is a welcome step.
Though there have been some talk on increase in rate of service tax so as to align with the rate of services on GST, it might not have been fruitful considering the fact that it is only for four months till July and getting Parliamentary approval to the increased rate itself may take two months or more.
The Finance Minister emphasized on use of IT system to reduce human interaction and possibility of error and corruption. The IT system would lead to e-assessment thereby ensuring greater transparency, reducing the time of assessment and useful in mining data. As prayed by the industry, emphasis was laid to enforcing greater accountability of Tax officers for specific act of commission and omission.
Matters related to GST implementation.
Besides Demonetisation, passing of the GST Constitution amendment was hailed by the FM in his budget speech as tectonic policy intiative. GST is the top priority for the Government with multifold objectives of bringing transparency, increase in revenue for Central and State Governments, widening of tax net, simplified tax structure. It was reiterated that GST council had 9 meetings in which major issues have been resolved including broad contours of GST tax rates, threshold exemption, review of draft model GST and IGST law, Compensation law and administrative mechanisms.
Preparedness of IT system is on schedule. Government would reach out to trade and industry from 1 April 2017 for creating awareness about GST. Further, he assured that the Centre will not compromise cooperative federalism while working towards GST giving necessary assurance to the States.
The very fact that the FM did not tinker with excise duty, customs and service tax rates in general, shows that he is focused on its implementation by 1 July.
Statement from Akhilesh Tuteja, National Head – Technology sector, KPMG in India on impact of Budget 2017 on IT/ Digital sector
ON IT/ DIGITAL SECTOR
“India is now on the cusp of a massive digital revolution and this is reason why Digital Economy featured as one of the main themes of the Union Budget 2017 proposals. Among others, key proposals like ‘DigiGaon initiative’, ‘SWAYAM platform’, furtherance of ‘BHIM’ and ‘UPI’ with launch of referral bonus/ cash-back schemes, ’Coach Mitra’, expansion of e-NAM, electoral funding through digital mode, BharatNet project, ‘RAPID’, etc, would contribute to the Technology Sector’s increased participation in the Government’s agenda of building a digital and cashless India. Exempting duties on POS terminals card readers, scanners etc would also aid in this initiative.
Relaxation of conditions for providing income-tax incentives to start-ups would provide the much needed impetus to the Government initiatives for promoting domestic IT start-ups. .
If 1960’s was considered as ‘green revolution’ in India, the period ahead promises to bring about a ‘digital revolution’ that should pave way for a ‘Transformed-Energised-Clean’ India.”
Statement from Parizad Sirwalla, Partner and Head of Global Mobility Services, KPMG in India on Personal Taxation ON PERSONAL TAXATION
The FM has provided a welcome relief firstly by reducing the tax rate to 5 per cent from 10 per cent for income below INR 5 lakhs and at the same time reduced the rebate from tax to INR 2,500. This gives every tax payers benefit upto a maximum Rs 14,807 depending on income level other than few in the bracket of Rs 50 lakhs to 1 cr will who will have to pay an additional surcharge on tax @ 10 per cent. He has also reduced the holding period on sale of immovable property from 3 years to 2 years for claiming long term capital gains beneficial tax rate. This along with other policy measures on affordable housing will be viewed as a positive for the real estate sector.
The FM has also made measures to ease tax compliance by introducing a one page form for taxpayers with income below Rs. 5 lakhs with no business income. He has also rationalized benefits of NPS to self-employed individuals and provided tax exemption to partial withdrawal which will help in dealing with emergency situations.
Service tax remaining unchanged is also being considered as very beneficial.
While there is immediate benefit for common man once would need to read the fine print to assess the overall impact.
Statement from Sai Venkateshwaran, Partner and Head, Accounting Advisory Services, KPMG in India
ON ACCOUNTING ADVISORY SERVICES
IPOs of CPSEs planned in a time bound manner
The finance minister’s announcement that some central public sector enterprises, including those under the railways ministry, will be publicly listed on the capital markets in a time bound manner, with a view to enhancing public accountability and unlocking value, is a welcome move, and is a reiteration of the policy announced in last year's budget about divesting stakes in public sector enterprises. This will help the government unlock value of these companies and monetize them to generate resources for investment in new projects.
The companies that are likely to be considered on priority for an IPO, include three entities owned by the Indian Railways, namely, Indian Railway Catering and Tourism Corporation Limited (IRCTC), IRCON International Limited, and Indian Railway Finance Corporation Limited (IRFC).
Once these companies for an IPO and get listed, apart from helping the government unlock value it will allow them to meet their capital requirements from sources other than the government, which in turn will also force these public sector companies to bring in greater transparency and enhanced governance standards. With public accountability being a key driver, these companies will be forced to become more efficient, competitive and nimble enough to respond to changing market dynamics and enhanced competition from their private sector competitors as well as gear up for enhanced security of their performance parameters by the public shareholders.
Listing of security receipts issued by ARCs to be permitted
The Finance Minister also announced that the listing and trading of Security Receipts issued by a securitization company or a reconstruction company will be permitted on registered stock exchanges. This will enhance capital flows into the securitization industry and will particularly be helpful to deal with bank NPAs. However, this needs to be done with adequate safeguards and possibly restricted to sophisticated investors who understand the risks associated with such
Statement from Utkarsh Palnitkar, National Head – Life Sciences practice, KPMG in India
ON PHARMA
The life sciences sector had great expectations from the Budget not only from a fiscal incentives perspective but also from a regulatory angle; more so, given the government’s vision of making India one of the top-three pharmaceutical markets by 2020.
However, this year, too, no specific impetus was given to the sector. While the move to eradicate certain diseases; the proposal to set up two new AIIMS; additional post-graduate medical seats; proposed amendments in the Drugs and Cosmetics Rules; and new rules for medical devices are welcome, the Budget has not specifically addressed imminent challenges directly affecting the sector.
In order to stay competitive in the overseas market and given the uncertain global climate, it was expected that specific impetus or incentives would be given to innovation in the form of weighted deduction on R&D, incentives for patents, exemptions of certain duties and taxes, etc.
These demands remained largely unaddressed, giving no specific reason to cheer for the sector as a whole in 2017–18.
Statement from Richard Rekhy, CEO, KPMG in India
With a 3.5 per cent expansion in total outlay, the Union Budget has aimed at sending out a clear indication that India is pacing itself for stronger growth and sustained development. With a fiscal deficit of 3.2 per cent, the budget has managed to find a balance between fiscal management and public expenditure to a considerable extent. The increase in allocation for agriculture and rural sectors, along with measures to digitise and enhance the flow of credit to agriculture, stand out. Greater focus on the social sector is also appreciable. The thrust for greater transparency in political financing is particularly commendable. So is the tax relief that has been provided to the lower middle class. 96 per cent of MSMEs have been provided a tax-cut which might go a long way in increasing compliance and help alleviate the disruption in fund-flow.
The 79 per cent increase in allocation for infrastructure is noteworthy, and it must now go hand in hand with synergising investments into the sector. The oil prices expected to begin ascending again, along with rising protectionist sentiments across the globe warrant the need to augment non-tax revenues through disinvestment and efficient asset recycling. Over the coming fiscal, measures to remonetise India quickly, addressing the bottlenecks in infrastructure effectively and easing business persistently, will be pivotal. While the expected corporate tax lowering has not come through, the year will be memorable for India if the GST comes into force swiftly, adverse effects of demonetisation simmer down, and much of the well-rounded budgetary ideas get implemented.
Statement from Amber Dubey, Partner and Head, Aerospace and Defence, KPMG in India
Increase in defence budget from INR 2.5 lac cr to INR 2.74 lac cr is positive but the stagnancy in the capital expenditure at around INR 86,000 cr is inadequate considering the extent of swift technology upgrade our defence forces need. This may also impact investments in Make in India in aerospace and defence.
FIPB is being abolished which is a welcome step. There are enough checks and balances to keep any unwanted foreign investors out.
Hope further relaxation in FDI norms will be announced soon. The subjective requirement of 'modern technology' should be dropped. India should welcome FDI even if it's in old technology that still has relevance. We can be choosy ten years down the line.
1. Select AAI airports in Tier 2 cities will be taken up for operation and maintenance in the PPP mode. This is positive development. Will bring in greater efficiency, best practices and accountability. Higher commercial revenues will help reduce aeronautical charges and make flying more affordable.
2. AAI Act will be amended to enable effective monetisation of land assets. Many AAI airports especially at state capitals have significant commercial value. The revenue generated can be utilised for airport upgradation, development of new regional airports and for reducing aeronautical charges.
3. Under Regional Connectivity Scheme (RCS) viability gap funding (VGF) will be exempt from service tax for a period of one year from the date of commencement of operations of RCS airport. This should be extended to the entire duration of the VGF since by definition, the VGF is the subsidy paid by the government to make regional connectivity viable. A subsidy cannot be treated as taxable revenue.
4. Carry forward of MAT upto a period of 15 years instead of 10 years at present (might be helpful for some on a case to case basis).
5. Abolition of FIPB is a welcome step. There are enough checks and balances at MoCA and DGCA to keep any undesired foreign investors out.
6. Most of the other fiscal, monetary and policy reforms have already been captured in the landmark National Civil Aviation Policy (NCAP 2016) released in June 2016.
7. The key issues of GST rate on air tickets, aircraft maintenance and fuel will be taken up separately by the GST council.
8. Overall, a well balanced, pro-poor, pro-growth budget. This along with the NCAP 2016 is likely to keep Indian aviation on the high growth path.
