MUMBAI: Ahead of the Union Budget, SBI economists on Tuesday pitched for avoiding new taxes and urged the government to mount “honest attempts” to settle past litigations to raise resources instead.
Given the pandemic and the resultant lessons, an additional expenditure of over Rs 2.5 lakh crore will have to be provided on the healthcare front, the economists at the country’s largest lender said, adding the government spent only 1 per cent of the GDP under this head in FY21.
“One suggestion. There must not be any new taxes in the Budget. Let us have a tax holiday budget, with carefully crafted policies for immediate fiscal lubrication.
“A game changer in the budget could be an honest attempt by the Government to settle the cases under tax litigation once and for all,” they said in a note, adding that as of data available till FY19, the total amount under dispute was around Rs 9.5 lakh crore.
The amount under litigation includes Rs 4.05 lakh crore in corporation tax, Rs 3.97 lakh crore stuck in income tax cases and another Rs 1.54 lakh crore on account of commodities and services tax, the note said.
It also hinted that there can be a cess on the vaccine administration on the anvil and sought the same to be implemented only for a year.
For senior citizens, some tax incentive for savings is an essential action and added that it has minimal fiscal implications.
From a fiscal position perspective, the note said, the combined fiscal deficit of the Centre and states will go to 12.1 per cent of GDP in FY21, with the Centre’s alone at 7.4 per cent of the GDP (gross domestic product).
For FY22, it expects the Finance Ministry to target to get down the fiscal deficit to 5.2 per cent in the Budget, assuming that the expenditure growth is curtailed at 6 per cent and a 25 per cent jump in receipts.
It pegged the overall disinvestment proceeds to be budgeted at Rs 2 lakh crore but did not expand the major candidates.
The fiscal situation at the state level is also stretched, but a bit better than what was initially anticipated, it added.
On the controversial aspect of GST shortfall, it said the payables to the states from the Centre will narrow down to Rs 25,000 crore, assuming that 50 per cent of the IGST collected is disbursed to the sates by March 2021 and states will end the fiscal with an overall shortage of Rs 3 lakh crore in tax revenue.
In the wake of reports suggesting the government is thinking of a Keynesian approach, the SBI economists backed the plan, saying a push to infrastructure such as roads, civil aviation and agriculture will be a well advised strategy.
With the government creating a DFI (Development Finance Institution) and given the abundance of financial savings, there should be a clear plan to mobilise such savings for financing infrastructure, it suggested.
The note also said that states should monetise power transmission assets to release capital for other productive purposes.
From a banking perspective, it recommended the government to lay out a clear plan to reduce state ownership in public sector banks to 51 per cent, and also sought clarity on taxation for banks.
It also explained that the Income-tax Act provides for recognition of income on bad and doubtful debts in accordance with the rules framed by the CBDT (Central Board of Direct Taxes), which provide for 6-months overdue delinquency norms.
The rules issued by the CBDT for recognition of income on bad and doubtful debts need to be amended to be in line with the RBI guidelines in this regard, the note said.