Expectations from the Union Budget 2016

Press Release

25 Feb 2016

With the Government focusing on improving India’s economic growth and establishing the country as a hub for manufacturing through its key initiative ‘Make in India’, manufacturing sector hopes to see major reforms this year in the union budget. To transform India into a manufacturing hub, incentivizing investments not only from international players but also from domestic players should be a priority. Policy measures to fast track clearances, financial incentives, etc. should be promoted. Moreover, reforms in the infrastructure sector aimed at enabling movement of raw materials and finished goods in the country as well as importing/exporting, would boost manufacturing.

We are optimistic about the passage of the Goods & Services Tax (GST),as it will provide the much needed stimulus for economic growth. Changing the existing indirect taxation will enable free flow of goods within the economy and also eliminate the cascading effect on tax. Speaking of adhesives, we hope the custom duty on raw materials used in adhesive manufacturing is reduced from 7.5 % to 5 % and the duty drawback rate for adhesive exports is increased from
3% to5 %. Additionally, we believe it is crucial to reduce the direct tax rate from 30 % to 25 %, as committed by the government in the union budget 2015.

CENVAT credit rules need to be considered for legislative changes to achieve the fundamental proposition of reducing the burden on businesses where the tax is on final consumption. As part of these rules, we expect credit on all expenses concerning business without any corresponding connection with output goods/services to be permitted. Further, it would be good move to streamline provisions for credit acceptability on inputs/capital goods/input services with an aim to bring equality in availing credit. In addition, one of the industry expectations is that the recently introduced Swachh Bharat Cess, which is currently a cost in the hands of taxpayers,is made CENVAT-able to preserve a seamless credit chain. Moreover, it would be good if depreciation on goodwill is incorporated as part of the Income Tax Act.

It is important for the government to enable the Indian manufacturing sector to remain competitive in the face of fierce international competition, owing to a global slowdown and resultant excess capacities in other countries. For this to happen,we believe innovation and R&D will play a key role. Thus, we expect policies that will boost private investment in innovation and R&D to be passed, and innovation and R&D be incentivized.