Union Budget 2018 : What India can expect in Budget

Budget 2018 : What India can expect in Budget

Calendar year 2017 witnessed several historic tax reforms globally – signing of the multilateral instrument, the OECD update on the Model Tax Convention and sweeping reforms in the US Tax Code. Even back home, the government continued its efforts to make the country an attractive investment destination by driving initiatives such as ‘Make in India’, ‘Digital India’, ‘Ease of Doing Business’ and implementing the long-awaited goods and services tax (GST). 

The US tax reforms are historical in as much as they propose some radical changes including for example a steep reduction in the corporate tax rate from 35 per cent to 21 per cent and a shift to a territorial basis for taxation. These reforms are expected to reduce effective tax for corporates and individuals doing business in the US. 

Initial reactions from the rest of the world, including India, is that these reforms may be disruptors, and consequently, require countries to rethink their earlier practices to attract and retain investments. 

With India’s Union Budget 2018 being just around the corner, the question is how much of an impact these changes in the US will have on the Union Budget. 

First, it should be appreciated that India’s demographics and macroeconomics is very different from that of the US, and therefore, there is no need for India to radically change its tax framework merely to align with tax reforms in the US. Second, while tax does play an important role in the decision-making process for doing business in any jurisdiction, it is seldom the sole deciding factor. 

In the Finance Bill 2016, the Government had identified nine pillars on which its vision to ‘Transform India’ was to be built. Fiscal Discipline and Tax Reforms were to be the two key pillars. Since then, the government’s effort has been to strengthen these pillars by introducing relevant changes in its policies. A significant improvement in India’s recent ranking on the ‘Ease of Doing Business’ Index (100 from 130) and Moody’s upgrading its rating after a period of 13 years bear testimony to the fact that the government’s efforts are beginning to pay off.