'Jobs needed budgetary push; better tax regime wanted'

The Squirrels talks to senior journalist and founder-editor of Editorji Vikram Chandra to assess what is good about the budgetary proposals of Finance Minister Nirmala Sitharaman presented on 23 July. Chandra broadly covered the following points.

Tax Rationalization and Compliance

The Union Budget 2024-25, presented by Finance Minister Nirmala Sitharaman, marks her seventh consecutive budget, a historic milestone. However, a critical area where this budget could have done more is tax rationalization. Rationalizing tax rates could simplify the tax structure, making it more understandable and predictable for taxpayers. The current tax regime, with its numerous slabs and exemptions, often creates confusion and inefficiency. Simplification would not only improve compliance but also enhance the overall ease of doing business in India.

Moreover, the budget needed to address the facilitation of tax compliance more robustly. Despite some measures aimed at easing tax processes, many taxpayers still find the system cumbersome and time-consuming. Enhanced digital infrastructure and streamlined procedures could significantly reduce the burden on taxpayers, fostering a more taxpayer-friendly environment.

The issue of 'tax terrorism' — the alleged aggressive and arbitrary enforcement of tax laws — remains a concern. Businesses and individuals often feel harassed by sudden and hefty tax demands, which can deter investment and stifle economic growth. By addressing these issues head-on, the government could instil greater confidence among taxpayers and potential investors.

Employment and the Political Landscape

It's an open secret that the Bharatiya Janata Party (BJP) faced significant challenges in the last Lok Sabha election, largely due to the opposition's effective narrative on unemployment. Unemployment remains a critical issue in India, with millions of young people entering the job market each year. The opposition capitalized on this by highlighting the BJP's perceived failures in generating sufficient employment opportunities, resonating with the electorate and impacting the BJP's performance.

Recognizing this, the course correction in employment generation introduced in the budget is a welcome move. The government has announced several initiatives aimed at boosting job creation, particularly in sectors with high growth potential such as technology, manufacturing, and infrastructure. These initiatives include incentives for startups, support for small and medium enterprises (SMEs), and substantial investments in infrastructure projects. By focusing on employment, the government not only addresses a critical economic need but also a significant political challenge.

Asset Indexation: Equities and Real Estate

Another notable aspect of the budget is the removal of asset indexation. For those holding equities, this change is beneficial. Asset indexation, which adjusts the purchase price of an asset to account for inflation, can complicate the calculation of capital gains. Its removal simplifies the tax process for equity investors, potentially encouraging more investment in the stock market. This can lead to greater market liquidity and stability, benefiting the broader economy.

However, the removal of asset indexation in the real estate sector needs to be examined on a case-by-case basis. Real estate investments are typically longer-term and involve significant amounts of capital. The absence of indexation could lead to higher capital gains taxes for property investors, which may discourage investment in the sector. This could have a ripple effect on the real estate market and related industries, such as construction and home financing. It is crucial to balance the need for tax revenue with the potential impact on the real estate market.

Conclusion

The Union Budget 2024-25 reflects the government's attempts to address several critical areas of concern, from tax simplification to employment generation and asset indexation. While it makes significant strides in many areas, there are opportunities for further improvement. Addressing the complexities of the tax system, fostering a more compliant and less adversarial tax environment, and carefully considering the impacts of policy changes on various sectors will be essential for sustaining economic growth and stability.

As India navigates its economic future, the government's ability to adapt and respond to these challenges will be key. The measures introduced in this budget are steps in the right direction, but continuous evaluation and adjustment will be necessary to meet the evolving needs of the Indian economy and its people.