Union Budget 2022-2023: The Ministry of Finance is rightly positive about the strong economic recovery and growth that India has recorded as it recovers from the pandemic
Indian Union Budget 2022: File image of Finance Minister Nirmala Sitharaman posing for photos before presenting the annual budget in Parliament. AFP
Relations between India and the UK are getting stronger at the end of the first month of 2022. The new year has started with the announcement that the long-awaited negotiations between India and the UK on the agreement of Free Trade Agreement (FTA) started in earnest. As the negotiating teams sit together, the Union Budget 2022-2023 will soon be announced, setting the tone for India’s domestic politics for the coming fiscal year and beyond. British businesses, which have only one eye on the FTA negotiations, will also be watching the budget closely.
The Ministry of Finance is rightly positive about the strong economic recovery and growth that India has recorded as it recovers from the pandemic. The latest figures show that real GDP growth is estimated at over 9% on average in 2021-22, supported by robust activity in all sectors and in particular in the manufacturing sector which has seen an impressive growth of 12.5%. % over the same period. An important result of this positive performance has been the upward trend of foreign investment in India.
India’s growth is expected to be the highest among major nations
FDI inflows in the first half of 2021-2022 recorded a 4% year-on-year increase, with IT and IT, automotive and services sectors attracting larger IDEs. Indeed, going forward, India’s growth in 2022 is expected to be among the fastest growing of major countries, confirming the success of the pandemic recovery. As such, this year’s EU budget is an important opportunity to build on this success and generate more investment and long-term growth.
Last November, the UKIBC made recommendations, on behalf of UK business, to officials in the Department of Finance on reforms to be included in the next Union budget aimed at promoting increased investment across all sectors to benefit India.
While the previous budget brought a dramatic reduction in the corporate tax rate to 22% for domestic companies, foreign companies were largely excluded. A clear and staggering reduction in rates for international companies would also help attract and develop new and existing financial capital, thereby improving funding for important national programs.
Rationalize tariffs in telecoms
We support the Indian government’s ambitions to put India at the center of the Industrial Revolution 4.0. and facilitating the flow of datasets would significantly improve India’s position as an attractive operating environment. At the same time, telecom service providers have struggled lately, due to higher regulatory burdens, investment costs and reliance on imports of telecom equipment. Companies would like to see tariff rationalization that covers exemption on payment for spectrum, license fees and user fees; reduction of basic customs duties on the importation of equipment and refund of input tax credit up to Rs 35,000 crore. This would alleviate existing financial strains and promote technology transfer across borders.
Seek phased BCD reduction on bulk spirits
Another area where reform could benefit Indian businesses and consumers is the basic customs duty in the alcoholic beverages sector. Many Indian companies use bulk spirits imported from the UK for their end-use products. However, some are constrained by the high basic customs duty (150%) applied. The effective tariff is considerably high by global standards, including some large emerging economies such as China (5%) and Brazil (20%).
A gradual reduction of the BCD on bulk spirits would improve access to high quality products at reduced costs for domestic consumers and for companies using the products in their own production process. Furthermore, it promises positive results to develop the domestic market through manufacturing, agriculture and hospitality channels as well as technology transfer in areas such as packaging and process technology.
Define the scope of “e-commerce operator”
The Equalization Tax (EL) provisions introduced in 2016 and expanded in 2020 to replace the digital tax on e-commerce operators have been a successful step. The implications of this tax are far-reaching for digital-only businesses as well as businesses going digital, especially for non-residents. Even the higher education sector, which seeks higher levels of internationalization, faces this uncertainty to some extent. Therefore, as the growing needs for digitization and commercialization increase, it is important to appropriately define the scope of an “e-commerce operator” as well as validate the applicability of EL provisions in accordance with OECD BEPS tax commitments.
Tax incentives needed to attract ESG incentives
To achieve the goal of net zero emissions by 2070 and the commitment to increase renewable energy capacity to 500 GW by 2030, India, like all countries, must prioritize measures aimed at sustainable finance mechanisms, which could include developing an appropriate taxonomy for sustainable business, popularizing financial products, and offering tax incentives to attract greater investment in the Environment, Social and Governance (ESG) space .
With India’s fiscal position and resilience improving, this year’s budget is expected to be more outward-focused by streamlining various tax measures, which portray India as a global hub for business and foreign investors. The combination of these elements with a strong surge in investment would secure India’s position as a forward-looking economy.
For the UK, such a budget with positive reforms – combined with the achievement of a comprehensive free trade agreement over the coming year would further strengthen the ties between Indian and UK businesses in the short and long term. term.
The author is Executive Chairman, UKIBC.