Budget 2020 Expectations : “Populist” or “Mixed Bag” ?
The Financial Year 2019-20 saw many Budget announcements by the FM. Starting with Interim Budget in February 2019, then Union Budget in July 2019 till last month, there were piecemeal announcements by FM to revive the economy or the taxpayers. There are many speculations about the upcoming budget amidst the challenging times faced by this economy. The tax cut is always a general expectation but apart from that many expectations favoring tax payers are roaring around. We list below some popular expectations and try to evaluate the possibility of these announcements.
Reduction in Personal Income Tax Rate
Expectations are that the FM will announce sops for individual taxpayers like tax rate cut or increase in exemption limit of tax for personal income. This is the most sought expectation every year, however considering that there is very little scope for the treasury to fill the gap in collection caused by such sops. Fiscal deficit for last year is likely breach the budgeted target. The loss of revenue this year has already been high on account of tax rate cuts and sops provided in earlier budget plus reliefs granted during rollback. At the same time the government has not met its disinvestment targets. That further lowers the revenue. The direct as well as indirect tax collection is under stress.
Having said that, this is the most positive announcement to make maximum taxpayers happy. Hence, a little tweaking with the slab rates cant be denied.
Removal of Long Term Capital Gains (LTCG) tax
In FY 2018-19, the LTCG tax on equity shares was introduced at 10%. This has take back some equity investors form investing in equity mutual funds. At the same time, in-spite of introducing this tax, there is very little increase in tax collections on this account. Hence, many experts believe that the LTCG tax on equity shares should be removed. This will provide big relief to the equity investors.
LTCG tax removal will certainly boost the stock market. However another likely re-entry of the tax after few years cant be denied.
Direct Tax code
Announcement of implementation of Direct Tax Code is another populist announcement that can happen in this budget. The removal of surcharge in DTC will favour even the high tax paying group. However, as mentioned in the point 1 above, the loss of revenue will be significant and unless it is met by another tax collection strategy DTC implementation will not be done.
Digitisation – Prefilled tax returns
As the government is focused towards digitisation of the Income Tax department and seamless or faceless assessments, there can be new announcements towards the next level of digitisation. Like, prefilled tax returns for certain section of tax-players e.g.salaried individuals.
Some announcements to revive the economy
There can be some sectoral announcements to revive the economy; like
- Exports : Global economic slowdown has hampered the exports. Some sops can boost the exports.
- Sops to SME / MSME sector – This can improve manufacturing sector and create more jobs
- Real Estate – Last year the FM is made many specific announcement to revive real estate hence it is less likely to again make some major announcements for this sector.
- Farmers – The government has already received some hatred for not uplifting the farmers. Hence some announcements related to Agricultural sector cant be denied.
- Tapping Cash Spends: In its continued en-devour to tap the cash economy, the government can make announcements related to cash spending / reporting requirements of cash or bring some tax-audit related changes.
Overall, in the midst of the challenges that the economy is facing, the FM is facing a tough challenge to revive the economy with positive announcements or rather without any negative announcements, this budget. It’s pretty difficult to address these issues unless some big surprises are awaiting. Hence we expect a “mixed” budget; though a “populist” budget is always welcomed by us as a taxpayer.