Union Budget 2017-18: Implications for Tax Administration & Public Services

The Union Budget 2017-18 has taken some important steps towards making the process of tax administration simpler, more transparent, progressive and more effective. At the same time, the budget has also made an attempt to make the delivery of public services more effective. Normally, in any budget the big-bang announcements get all the attention but small changes in administration and delivery do not get adequately noticed. It is these minor points that actually make a substantial difference to the final delivery of all budget proposals…

Why this budget is important from tax administration and public services point of view…

  • For Individuals the tax rates at the lowest taxable income slab of (Rs.2.5l to Rs.5l) per annum has been cut by half. This will not only expand the purchasing power of the large mass of tax payers but will also improve compliance and widen the tax base. Of course, there has been an additional surcharge of 10% on individuals earning between (Rs.50l to Rs.100l) per annum but that is in alignment with the broad progressive tilt of the government’s direct taxation policy.
  • At a procedural level, the government has also made an attempt to simplify the process of tax filing for the entry level tax payers. For example, individuals earning less than Rs.5 lakh per annum can now file their entire returns in a 1-page form. Again, apart from making the task of tax filing simpler, it will also improve compliance and widen the tax base.
  • Apart from individuals, this budget has also focused substantially on making taxation and compliance simpler for the MSME sector (small and medium enterprises). To begin with, the applicable percentage profit in case of small companies for the purpose of presumptive taxation has been cut from 8% to 6% subject to digital receipts of money. In addition, threshold limit for audit of those who opt for the presumptive scheme has been increased from Rs.1 crore to Rs.2 crore per annum. Also, the threshold for maintenance of books of accounts has also been doubled. More importantly, in case of payment of presumptive tax, the advance tax can be paid in 1 instalment instead of 4 instalments if the total income is less than Rs.50 lakhs for the full year.
  • The above measures are likely to give a big boost to MSMEs. A lower presumptive income level of 6% will improve compliance among MSMEs and encourage them to opt for transactions through the banking channels. The increase in the limit for audit will reduce the compliance cost for many companies that are still in the growing stage and allow them to focus on their core business. On the compliance front, the facility to pay advance tax will also substantially reduce compliance and operational costs for small companies. These measures are well thought-out because it is these SMEs that provide the bulk of employment opportunities in India.
  • A very important theme of the Union budget has been to take forward the benefits of demonetization to its logical next step. The Budget has, therefore, focused on greater digitization, greater incentives for adopting the digital route, disincentives for those who indulge in unauthorized cash transactions and benami transactions. The budget also focuses on the use of technology to initiate immediate action based on the audit trail of transactions and correlate that with known sources of income. This will go a long way in reinforcing the faith of the people in the integrity of the system.
  • Another very important aspect of service delivery is the delivery of public services. The government has already made steady progress in simplifying processes like registration of companies, payment of taxes, obtaining passports, obtaining electoral cards etc. In this Union Budget, the government has gone a step further and simplified the passport issue process by making the Head Post Office a delivery channel for passports and for acceptance of passport applications. This will be a boon for people who have to currently travel long distances to keep their appointment with the passport officer.
  • An important constituency is the defence personnel and the budget has taken care to ensure that the needs of the defence personnel are adequately taken care of. Firstly, a Central Defence Travel System has been developed through which soldiers and officers in the armed forces can book their tickets online. This obviates the need for them to stand in long queues to book tickets. Additionally, the budget has also proposed a Web-based pension disbursement system, specifically focused on the defence personnel. This will ensure that pension disbursement and any queries will be addressed on a real time basis.
  • Finally, the government e-Marketplace for goods and services is already in place and readily functional. This will enable to convert all goods and services into once single market and add credibility with the explicit backing of the government.

As mentioned earlier in this article, this budget has focused strongly on ease of transacting, both for individuals and for businesses. More importantly, the budget has also focused on the all-important aspect of delivery of public services. While it may look small in isolation, the combined impact will be big and positive too!

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