The Union Budget 2024 holds significant promise as India looks forward to transformative tax reforms and strategic policy measures that could redefine its economic trajectory.
Beyond its fiscal implications, this budget represents a critical opportunity to unlock India’s economic potential, attract global investments, and strengthen competitiveness in the global arena.
In recent years, the Indian economy has seen exceptional growth. As per the World Bank’s Doing Business Report (DBR), India improved its regulatory environment to facilitate the establishment and operation of businesses, raising its Ease of Doing Business Ranking from 142nd in 2014 to 63rd in 2020.
India’s upward trajectory has been bolstered by ongoing policy reforms particularly in digital-led taxation and compliance protocols. The bedrock of India’s reform journey has been the reduction of compliance burden to create a more conducive business environment and enhance competitiveness.
However, stakeholders across sectors now look to Budget 2024 to further streamline tax processes, alleviate complexities, and address critical issues such as supply chain efficiency.
Corporate Taxation and Manufacturing Sector
A central focus of industry expectations is the rationalization of corporate tax rates. The reduction from 30% to 22% for existing domestic companies and to 15% for new manufacturing companies has been applauded for enhancing competitiveness, especially under the ‘Make in India’ initiative. Further reductions and simplifications are sought to bolster manufacturing capabilities and attract investments in key sectors.
It is important and would be timely to address tax disparities, such as those faced by foreign bank branches versus domestic entities. It will be crucial for fostering a level playing field and would further allow foreign banks to contribute to the financial sector in the country.
FDI and Regulatory Clarity
Foreign Direct Investment (FDI) is poised to play a pivotal role in India’s growth story, necessitating clearer and more liberalized investment norms. A predictable tax framework for foreign investments is essential to attract sustained inflows of foreign capital, driving economic expansion and job creation.
Technology and Infrastructure Development
The technology sector anticipates incentives for research and development (R&D) and clear tax guidelines for emerging technologies, which could attract global technology giants to invest in India’s digital economy. Similarly, infrastructure developers seek tax incentives to accelerate investments in critical projects, essential for enhancing economic infrastructure and connectivity across the country.
Healthcare and Custom Duty Benefits
In the healthcare sector, there is a pressing need for tax benefits to bolster domestic medical infrastructure and pharmaceutical production capabilities. Additionally, stakeholders emphasize the importance of customs duty benefits to optimize supply chain efficiencies.
Facilitating easier access to imported raw materials and components through reduced customs duties can significantly enhance manufacturing competitiveness and promote value addition within the country.
ESOP Simplifications and Regulatory Ease
There is a growing call for simplifications in Employee Stock Option Plans (ESOPs) to encourage employee ownership and align incentives with long-term corporate goals. Simplified tax treatments and regulatory frameworks for ESOPs can enhance their attractiveness as a compensation tool, particularly in startups and growth-stage companies.
Bilateral Trade Relations and Global Competitiveness
Amid global economic uncertainties, strengthening bilateral trade relations, particularly with strategic partners like the United States, through favorable tax policies will be pivotal. These measures not only stabilize economic ties but also foster expanded trade and investment opportunities across various industries.
Sector-Specific Reforms and Economic Impact
Sector-specific reforms, including simplifying capital gains tax structures and enhancing transfer pricing regulations, aim to reduce compliance burdens and create a conducive business environment.
There is also a need to extend ‘tax neutrality’ to reorganization by non-corporate investment funds outside India, akin to Indian mutual funds. Such reforms are critical to fostering sustainable economic growth and enhancing India’s global competitiveness.
As stakeholders eagerly await the unveiling of Budget 2024 on July 23rd, the focus remains on shaping a future where India’s economic potential is fully realized. The budget has the potential to set the stage for a vibrant business ecosystem characterized by clarity, competitiveness, and resilience across India’s economic landscape.
In conclusion, Budget 2024 represents a pivotal moment for industry, offering a pathway to enhance economic dynamism, attract global investments, and foster a competitive business environment.
By addressing key concerns such as tax reform, FDI liberalization, sector-specific incentives, regulatory clarity, and ESOP simplifications, the budget has the potential to unlock new growth opportunities and propel India towards sustainable economic development in the global arena.
As the government outlines its financial roadmap, stakeholders across sectors eagerly anticipate policies that will not only spur growth but also ensure India remains an attractive destination for investments and innovation in the years ahead.
(Shweta Buttan Kathuria is the Executive Director, and Dr Shreeya Kashyap is the Senior Associate, of the US-India Tax Forum, a dedicated tax policy initiative of the US-India Strategic Partnership Forum; Views are personal)
