Budget 2015-16 Reactions: KPMG

Budget 2015-16  Reactions: KPMG

KPMG Statement on GST from Sachin Menon , CO-Tax and Head of Indirect Tax, KPMG in India

" Devolution of 62% of the tax revenue to the states (including state taxes) is giant leap towards empowering states with additional funds to lead local developments.

I wish this opportunity could have been leveraged by the FM to address the states revenue concern on introduction of GST, so that it could have taken out resistance to GST, if any"

Statement from Sachin Menon, COO- Tax and Head of Indirect tax, KPMG in India

 " The announcement that the much awaited GST will be introduced on 1st April 2016, will definitely rejuvenate the industry and the Administrators to expedite the preparations right earnest.

The GST will make manufacturing more competitive and thereby support "make in India" Campaign. How fast the FM will move the wheels of change to usher in GST will be keenly watched in the coming days"

 Statement from Nilaya Varma, Head of Government services, KPMG in India

“Although possibly controversial and against economist expectation, the pushing out of meeting fiscal deficit target by a year shows pragmatism in bringing in additional public investments for infrastructure development, compensating lack of private investment and showing seriousness on improving overall infrastructure.

Statement on Jan Dhan Yojna - Nilaya Varma, Head of Government services, KPMG in India

 Proper Implementation of the proposals for using the Jan Dhan Platform for social security is very positive. It has the potential to mitigate negative financial impact of catalytic health event for poor, which is one of the largest in the world.

The challenge will be how effectively it is implemented and how easy it is for poor to benefit out of the new schemes. 

 Statement from Jaideep Ghosh, Head of Tourism and Hospitality sector, KPMG in India

 Tourism is a clear focus of the government. Currently a Tourism Vision 2030 is underway by the Ministry.

The proposed increase in the number of countries under the Visa on Arrival scheme, we expect, should catapult the inbound foreign visits to exceed 8 million in the current calendar year.

Announcements on conservation and promotion of World Heritage Sites are welcome, however this needs to be done as per international standards. Other initiatives such as Swacch Bharat, Clean Ganga, smart city, women safety, and tax benefits to Yoga need to be widely communicated to create a positive tourism environment.

 Overall the tourism, travel and hospitality sector would benefit within the positive economic outlook facilitated by enhanced investment in infrastructure, ease of doing business, Make in India related impetus and more predictable tax environment assured by the Finance Minister.

 Statement on Healthcare sector - Nilaya Varma, Head of Healthcare sector, KPMG in India

While It is a welcome move to set up new AIIMS, especially in states like Bihar, Tamilnadu and J&K which would strengthen the tertiary care infrastructure in these states, however the pressing need is to strengthen the primary and secondary care network, if we have to create better health outcomes.

Statement from Jaideep Ghosh, Partner , KPMG in India on Telecom sector

Union Budget traditionally does not focus on telecom sector. Overall the sector would benefit within the positive economic outlook facilitated by enhanced investment in infrastructure, ease of doing business, Make in India related impetus and more predictable tax environment assured by the Finance Minister.

Emphasis on speedy implementation of National Optical Fibre Network to provide connectivity to all villages would benefit the telecom sector as well as have a cascading impact on the economy.

 Statement from Anish De, Partner – Infrastructure and Government services, KPMG in India  on Renewable Energy Sector

 The general emphasis on renewable energy and re-stating of the MNRE target to 175 GW by 2022 comprising 100 GW of solar, 60 GW of wind and 15 GW of other technologies is not adequate to make capacity creation happen in reality.  Prima facie, we have not seen any concrete measures in the budget for renewable energy.

Unlike rail and roads, tax free bonds have not been specifically proposed for renewable energy. Given this, any funds from tax free bonds will now have to come out of the general pool of infrastructure bonds.

Also, the proposals for the utilization of funds from the increased coal cess are yet to be spelt out. It would have been better to propose specific allocations and measures for renewable energy, especially on availability of low cost funds for the renewable energy sector.

 Statement of  Ashvin Vellody,  Partner – Management Consulting, KPMG in India from Ecommerce Sector perspective

 The expectations from the ecommerce industry stakeholders from the Union Budget were definitely high this year, and while the Finance Minister provided a set of welcome measures, he stayed away from  big bang policy announcements specific to this space.

The sector expected welcome announcements on GST, and on creation of a conducive environment for foreign investment inflow and improvement in ease of doing business.

 The Government has now proposed introducing GST from April 2016  which will help ecommerce companies rationalize supply chains by addressing  the taxation issues, In addition steps announced include progressive plans to address infrastructural challenges that will help increase reach of eCommerce, to improve connectivity in the hinterlands under the Digital India Program  by accelerating the NOFN rollout. It is a welcome move to encourage job creators by introducing a 1000 cr fund to enable the technology start up eco systems to incubate new ideas.

We also expect a cascading effect of the reskilling program and the plan to set up  new educational institutions to provide a boost to hiring the right  IT engineering talents in the long term .

 But as they say, the devil is in the details, which will provide further clarity on the budget pronouncements. If these plans can be effectively executed on the ground, it will provide a fillip to the digital/ ecommerce sector.

 Statement from Jaideep Ghosh, Head of Transport and Logistics , KPMG in India

Infrastructure reinforcement is a clear focus of the government with additional Rs 70,000 crore investment in the sector.

The proposed addition of one lakh kilometer of road network in the coming year, we expect, would be welcome, as roads account for significant part of our freight movement and is over-congested.

Overall it is fairly balanced If we look at the announcements made in the previous year’s budget around coastal shipping, inland waterways, metro rail, networking ports and various initiatives proposed by the recent railway budget. Corporatization of ports have been announced, however in our view, we may not expect to see this implemented in the near term.

 The transport sector, especially roads, rail and ports would benefit from the positive economic outlook facilitated by enhanced investment in infrastructure, focus on improving rural India, Ease of Doing Business, Make in India related impetus, GST and more predictable tax environment assured by the Finance Minister.

 KPMG Statement from Pratik Jain, Partner – Indirect tax, KPMG in India

This time the industry was expecting a ‘transformational’ budget, with a significant revamp of existing taxation framework to make it more manufacture-friendly and conducive to business.

 Against the backdrop of these expectations, overall, the budget proposals on indirect taxes appear to be steps in the right direction, with a clear focus on transition to GST from April 2016. 

While measures such as increase in service tax rate by about 2%, pruning of service tax exemptions, etc. may not be populist, but are essential for ensuring a smooth transition to the new GST regime.

Similarly, focus on promoting the ease of doing business through e-invoicing, speedy registrations, etc. is a welcome move, though the industry was expecting a lot more on this front.  Rationalization of duties to address the inverted duty structure and promote indigenous manufacturing is also a positive development, though the industry would have preferred more radical proposals. 

However, option to levy a new ‘Swachh Bharat Cess’ on services could turn out to be a dampener.  

Of course, one would need to read the fine prints to assess the overall effectiveness (or otherwise) of the budget proposals, as in past some of the most critical proposals impacting taxpayers remained buried in the details.

Statement from Rajeev Singh, Head of Automotive sector, KPMG in India

The 2015 -16 budget has had no direct impact on automotive industry at large other than an announcement in the EV segment. However, increasing disposable income in rural areas will improve penetration of passenger vehicles and two wheelers.

Credit of 8. 5 lakhs to farmers announced in the budget 2015 will indirectly boost the agricultural equipment and tractors segment.

The government is aligning to ensure at least 1 family member will have an economic route to support the family indirectly, this would improve the sentiments of entry level two wheelers.Investment in infrastructure to go up by 70,000 crores, revitalization of PPP model of Infrastructure, development of 1 lakh kilometers of new roads will have an impact on commercial vehicles which has had a negative growth last year.

Later in the budget, the government proposed allocation of 75 crores towards electric mobility to move to next level of clean technology. The industry can only be hopeful that this would boost the consumer confidence.

However, lack of EV infrastructure in India will make it difficult for the segment to move at a fast pace.The government did not make any big bang announcements but stable investments made across agriculture, infrastructure, manufacturing, various segments of the society, etc. is focused towards a steady growth.

 Statement from Arvind Mahajan, Head of Infrastructure and Government services, KPMG in India

 Arun Jaitley's first full Budget, was presented in a favourable context with India's growth beginning to accelerate and fiscal deficit and inflation coming down.

 Mr. Jaitley's "growth oriented" budget sets the Agenda for government to achieve 8% growth in FY16 and poised for over 10% per annum over next 5 years.

Key emphasis of budget was on increasing investment in infrastructure sector, providing roadmap for transforming the indirect and direct tax regime, more effective direct transfer of subsidies, emphasis on making it easy to Make in India& Skilling India and special focus to key social initiatives of government such as Swach Bharat ( preventive health), Jan Dhan Yogana ( financial inclusion) and Digital India ( bridging digital divide)

He has stepped up public infrastructure spending by $12 bn in FY16, especially in railways & highways to kick start investment in the sector. 

While there is no immediate relief for stalled infrastructure projects the plan to create a Bankruptcy code, re-booting of PPP model, public contracts (resolution of disputes) bill are steps in the right direction

Finally he has laid ground for a competitive and predictable tax regime which is less adversarial. He has set stage for introducing GST by April 2016, thereby transforming Indirect Tax regime which will help create a common Indian market.

Also provided a roadmap for direct tax regime including reduction of corporate tax over next 4 years, deferral of  GAAR by 2 years and abolition of wealth tax

Overall a budget which tried to balance economics with politics. While this was not Big Bang reform budget but has attempted to create a institutional & regulatory framework for the future.

KPMG Statement from Pratik Jain, Partner – Indirect Tax, KPMG in India

 Reiteration of introduction of GST from April 1, 2016 is extremely positive.  Further, removal of eduction cess on excise duties and broadening the tax base by shrinking the parallel economy are also steps in this direction.

Higher budgetary allocation to states would perhaps further reduce the trust deficit between centre and states and enable smooth introduction of GST.   While increasing service tax rate from 12% to 14% may come as a bit of disappointment for consumers but was necessary as a run up to GST as the GST rate on services is likely to be 16% 18%.  India Inc which was largely sitting on the fence would have no option but to start preparing for GST now.

Reduction of customs duties on many raw materials and reduction of special additional duties would help incentivising make in India campaign.

 Statement from  Naveen Aggarwal, Partner - Tax, KPMG in India   on IT Industry welcoming the move to a globally

Government’s imprint on growth, infrastructure, job creation & skill development will have a positive impact for the IT-ITES sector. 

The additional outlay for IT start ups, focus on job creation for software sector, fully IT-based scholarships, and harmonizing the efforts on skill development through National Skills Mission will extend necessary funding and skill support to the sector.

 In keeping with the overarching objective of developing a globally competitive tax regime, the FM has made a number of positive announcements, including GAAR deferral by 2 years with prospective application, reduction in withholding tax rate for royalty and technical service fees from 25% to 10%, increase in domestic transfer pricing threshold from Rs 5 Crore to 20 crores and gradual reduction in headline corporate tax rate over 4 years from 30 to 25%, with phase-out of industry specific exemptions. 

The FM has reinforced his commitment to introduce GST by April 2016, and the increased service tax rate from 12 to 14 percent is a move towards this transition. 

While the Budget speech does not address specific industry expectations on MAT rate reduction and retro amendment on expanded royalty definition, the intention to move from an exemption-based to an internationally competitive tax regime with certainty, transparency and stability, shall be widely welcomed, both by the IT-BPO industry and Corporate India at large.   

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