Economists have recommended that the government take steps to rationalize customs tariffs and implement targeted benefits for vulnerable populations. In a recent pre-budget meeting with Prime Minister Narendra Modi, they urged a reduction in income tax rates and suggested reforms aimed at fostering savings and stimulating economic growth ahead of the Union Budget 2025.
One major suggestion was to lower income tax rates, which economists believe would alleviate the tax burden, thereby increasing disposable income. This increase in disposable income would empower citizens to save more and spend on essential goods, potentially revitalizing demand in sectors affected by decreased consumption.
In addition to tax rate adjustments, proposals included rationalizing customs tariffs and offering targeted benefits to lower-income groups. Economists asserted that lower tax rates for these households would enhance their financial stability, positively impacting household budgets and potentially stimulating greater overall consumption.
ECONOMIC URGENCY FOR TAX RELIEF WITH PM MODI
During the discussion, Prime Minister Modi underscored job creation as a primary objective of government policy. Economists highlighted the necessity for improved data quality to guide effective policy decisions and advocated for targeted interventions to counter weak consumption, inflation, and external economic uncertainties.
The Prime Minister reiterated his vision of “Viksit Bharat” or a developed India by 2047 and emphasized the importance of innovative thinking to ensure sustainable growth, especially amid global economic fluctuations.
CHALLENGES OF WEAK CONSUMPTION AND INFLATION
Economists pointed out that India’s domestic consumption has not kept pace with growth expectations. The country’s GDP growth was reported at 5.4% for the July-September quarter, marking the slowest rate in two years and falling short of the Reserve Bank of India’s 7% target.
Inflation is also a pressing issue, with November figures exceeding the RBI’s medium-term target of 4%. This rise in inflation is squeezing household budgets, reducing disposable income, and limiting discretionary spending. Economists warn that this trend could lead to a further decline in demand.
To mitigate inflation while promoting growth, economists have proposed solutions, including direct benefit transfers, increased public spending in rural areas, and incentives for job creation in non-agricultural sectors.
PAST INCOME TAX REFORMS
The Union Budget 2024-25 brought about significant reforms in the income tax structure, offering substantial relief to various taxpayers:
- Income tax slabs were revised for earnings up to Rs 10 lakh.
- The standard deduction for salaried individuals and pensioners increased from Rs 50,000 to Rs 75,000.
- Family pensioners benefited from a rise in their standard deduction from Rs 15,000 to Rs 25,000.
- The employer’s contribution deduction for the National Pension Scheme (NPS) for private-sector employees was raised from 10% to 14%.
Industry representatives from prominent organizations such as CII, FICCI, and PHDCCI have introduced numerous recommendations for the upcoming Budget 2025. They emphasized the need for comprehensive tax reforms, including simplifying capital gains tax, streamlining compliance processes, reducing TDS provisions, and establishing a dedicated dispute resolution mechanism.
As for the Goods and Services Tax (GST), proposals were made to initiate a simplified three-rate GST structure, dubbed GST 2.0, along with the inclusion of all expenses in the input tax credit chain.
Furthermore, industry bodies advocated for adjustments in direct taxes, including a decrease in tax rates for partnership firms and limited liability partnerships (LLPs), abolishing the dividend distribution tax, and offering relief for share buybacks by classifying them as capital gains while allowing for deductions on the cost of shares.
customs-related initiatives included proposals for a single certificate of origin for multiple bills of entry, a simplification of the appeal process, and the imposition of zero customs duty on essential raw materials. These recommendations aim to ease tax procedures, minimize compliance burdens, and enhance the business environment in India.