Budget 2020: Personal Tax Cut, Not Introducing Inheritance Tax Top Pre-Budget Expectations

New Delhi, January 23: The government is all set to table Union Budget 2020-21 on February 1 amid strong expectations from people for personal tax cuts and exclusion of proposed inheritance tax, among various other things, underlined a survey conducted by KPMG in India.

The year 2019 saw the government implement significant tax cuts for domestic companies (to 22 per cent) and for newly setup manufacturing companies (to 15 per cent) subject to their giving up available incentives and deductions. More than half the respondents to the survey plan to opt for the lower tax regime of 22 per cent by giving up available incentives from FY 2019-20. A majority of respondents also believe that the rate of tax for foreign companies, should also be reduced in light of tax cuts for domestic companies.

A further stimulus by way of personal tax cuts is also anticipated. A majority of respondents anticipate that the basic exemption limit of Rs 2.5 lakh for individuals will be increased. Respondents also expect the finance minister to increase the income limit at which the maximum marginal rate of 30 per cent kicks in. If implemented, this can help spur consumer demand by complementing the interest rate cuts delivered since last year

A majority of respondents believe that the finance minister will not introduce inheritance tax. This is in line with the overall expectation, that there exists a need to provide a fiscal stimulus by reducing taxes on individuals.

“Our pre-budget survey indicates that rate cuts for individuals is the most wanted item for everyone. This is in line with expectations that lower tax rates for individuals, along with the corporate tax rate cuts enacted last year, will boost spending and investment in the economy. Corporates are also hopeful of extension of tax holidays for exports to encourage more foreign inward remittances and continuing the weighted deduction for R&D spends to encourage Make in India,” said Hitesh D. Gajaria, Partner and Co -Head, Tax, KPMG in India.

“Introduction of e-assessment scheme last year to minimise the interface between taxpayers and the tax administration is seen as a welcome move, with many respondents believing that this will lead to greater transparency and efficiency. There is also a need to overhaul dispute resolution mechanism in direct tax laws, including therein provisions for negotiated settlements of tax disputes,” he added.

Dispute resolution continues to be an area of concern among respondents. Almost half the respondents believe that the approach of the revenue authorities in dealing with international taxation issues are not in line with international norms. While Dispute Resolution Panel (DRP) is indeed a fast track mechanism intended to address international tax and transfer pricing disputes, it clearly emerges from the responses that almost half of the respondents believe that DRP mechanism is not meeting its objective of resolving disputes amicably.

Just under 50 per cent of respondents believe that provisions dealing with the place of supply of R&D, testing services and other performance-based services under GST are detrimental to the export of services. Since persons in India who render such services to customers outside India also contribute foreign exchange for the country, the exclusion of such services from the ambit of export of services is seen by respondents as affecting exports.

On the capital market front, the survey revealed while the reintroduction of tax on long term capital gains on listed securities was controversial when it was introduced in 2018, only about 52 per cent of the respondents felt that it should be rolled back. Similarly, there was a muted response to the scrapping of Securities Transaction Tax on securities, with only 41 per cent in favour of its abolition.