Budget 2024: Government's Focus On Simplifying Taxes To Persist, Says EY

The government will continue its focus on ease-of-paying taxes, while legislative reforms will stay work-in-progress at the interim budget on Feb. 1, according to EY.

Finance Minister Nirmala Sitharaman is set to present the vote-on-account and the interim budget on Feb. 1, before the impending general elections scheduled later this year.

The tax landscape is still a work-in-progress, and there is a need for continued focus on the ease of paying taxes. The government is expected to maintain income tax rate stability, tighten enforcement, and improve compliance to minimise disputes, according to EY.

According to EY, because of the high level of litigation, the government may announce steps to reduce the pendency of disputed cases.

For further relief to taxpayers from persistent delays in refunds, TDS credit, etc., the government may examine the interface with the Central Processing Centre, EY said.

Tax certainty, tech-enabled efficiency, and encouraging domestic manufacturing and investments have been the cornerstones of tax policy initiatives in the past year, EY said in a note.

These are the government's current priorities, according to EY:

Simplify And Rationalise The Tax Law

• Simplified concessional tax regime for individuals

• Rationalisation of assessments and reassessments and many procedural aspects.

Maintain Income Tax Rate Stability

• No change in corporate income tax rates since FY20.

• No change in tax rates for individual taxpayers opting for the regular tax regime.

Tighten Enforcement And Improve Compliance

• Stiffer penalties for noncompliance

• Rise in searches, seizures and prosecution cases

• Prosecution cases increased from 2000+ in FY15 to 11,000+ in FY20.

Minimise Disputes

• Dispute Resolution Committee for small taxpayers (2021) .

Collaborate Internationally To End Tax Avoidance (G20 Agenda)

• Address tax challenges from the digitalisation of the economy.

• Tackling tax evasion, ending bank secrecy and tax havens,

• Exchange of information,

• Addressing tax avoidance by MNCs.

Even after steps have been taken to reduce tax litigation in the current tax landscape:

• The central tax-GDP ratio in the last 10 years has remained in the 10-11.2% range.

• India's combined tax-GDP of 18% (FY22) is inching closer to the Asia Pacific average of 19.8% (CY21) but remains much lower than the OECD average of 34.1% (CY21).

• Only 6–7% of India's population are taxpayers. In contrast, in the U.S., about 45% of the population pays taxes.

• As of 2021–22, Rs 20.8 trillion were locked in IT disputes, amounting to about 8.9% of India's GDP for the year.

• Taxpayers are facing persistent challenges with re-refunds, TDS credit and returns.

According to EY significant reforms to simplify compliance have yielded positive outcomes

• Direct tax collections have grown at a CAGR of 11.3% in last decade

• Direct tax buoyancy of 1.1 and GST buoyancy (Centre's share) of 1.3 in FY 2022-23.

• 64.9% increase in number of taxpayers from 57 million in FY 2013-14 to 94 million in FY 2022-23.

• Tech-enabled, efficient tax administration

Unfinished Agenda From Earlier Budgets

Section 132 was amended to provide that during the course of search the authorised officer, may requisition the services of any other person or entity, in accordance with the procedure prescribed by the Board. This procedure is yet to be prescribed.

Similarly, in and during post search enquiries, the authorised officer may make reference to any person or entity or any valuer registered by or under any law for the time being in force, who shall estimate the fair market value of the property in the manner prescribed. The method of computation of fair market value of the property is yet to be prescribed.