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Union Budget Should Create an Enabling Environment to Sustain Growth: CII
Dec 07, 2021

Sharing the CII’s recommendations for the forthcoming Union Budget 2022-23, CII has strongly urged the government to continue its investment focus and enhance capital expenditure in areas such as infrastructure to promote growth in the economy at a time when consumption demand has not picked up adequately.

Elaborating on the context of the CII suggestions, Mr T.V Narendran, President, CII said, “While the economy is showing strong signs of recovery, this would be the right time to focus on future challenges such as developing a competitive manufacturing sector and climate change”.  He also lauded the positive interventions made by the government during the last few months such as the creation of the DFI, the new public procurement guidelines and the commitment towards high public expenditure to kick-start the virtuous cycle of investment.

On infrastructure, CII has urged the government to consider replacing bank guarantees with surety bonds and to also develop the municipal bond market so that urban local bodies can raise funds for investing in infrastructure. Clarification on the tax treatment for the Hybrid Annuity Model (HAM) of construction contracts has also been sought. 

CII has strongly advocated the promotion of manufacturing as one of the priorities to provide a fillip to the economy. Given the high cost of doing business, the effective rate of tax is still high. For example, in mining, the tax rates in India are highest in the world when all the levies imposed by the Central, State and local governments, are accounted for. This should be addressed in the forthcoming Budget.

In addition, there are procedural complexities and large number of permissions are required for the implementation of projects resulting in time and cost overruns. To address this, projects should be allowed to proceed based on self-certification followed by audits. This would help avoid project delays.

Given the fact that future of manufacturing depends on technology advancement, the CII budget recommendations suggest setting up of a Technology fund on a PPP basis with matching contributions from the private and public sectors. This would be more effective than the exemption provided on R&D expenses, which did not yield any significant results.

CII suggestions have also stressed on the necessity of policy reforms for boosting employment and sustainability, to address the imperatives of development. On employment, the CII has suggested incentivizing employment-intensive sectors such as tourism.

On sustainability, CII has recommended a policy framework for transitioning towards decarbonization-wherein high taxation could be considered for high carbon products and vice versa. Industry should be incentivised to transition to low carbon products; production of renewable energy products should be rewarded and for hydrogen should be developed as an alternative fuel, companies should be provided with investment allowance for investing in installing electrolysers.

To help Indian industry become globally competitive, CII has suggested that all export products should be covered under the RoDTEP scheme and the RoDTEP rates should be reviewed and enhanced and should be commensurate with the actual embedded/ unrefunded taxes and duties. RoDTEP benefits should also be provided to the SEZs.

CII has suggested that the anomaly between tax rate on dividend income needs to be addressed and the tax rates on dividends for residents should be brought down to maintain parity with non-resident investors.

The start-ups have emerged as a conduit for entrepreneurship and innovation. To attract domestic investments into start-ups, government should consider reducing the percentage of Long-Term capital gains from 20% to 10% and abolish the surcharge on investments made into start-ups by Investment vehicles. Similarly, the process of issuing income tax refunds to start-ups should be accelerated. Further, relaxing the tax on capital gains arising on exit would be a key move in attracting funds into the Start-Up sector, according to CII.

According to CII, the new dispute resolution scheme (“DRS”) introduced in the Finance Act 2021 for resolving specified disputes in relation to specified Taxpayers in a faceless manner involving dynamic jurisdiction should be made available to broader category of taxpayers.

CII has also advocated ensuring a stable and predictable tax regime to help attract private investments, both domestic and foreign.

7 December 2021

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