Union Budget 2018: Key Highlights

The Government’s agenda of ‘Transform, Reform and Perform’ in the budget focuses on implementation of the recent reforms. Hence there are no big bang announcements. The budget addresses needs of agricultural sector and MSMEs, through which agenda of inclusive growth, formalization of economy and boost employment generation is targeted to be realized. The FM’s promise of reducing corporate tax rate from 30 percent to 25 percent for companies remains limited to the MSMES leaving the large tax payers to wait for another year. However, 99% of MSME’s with turnover of upto Rs 250 crores would benefit from the rate reduction. Unfortunately, the large corporates will now carry a slightly higher tax burden from an increase cess of 1 percent. Rationalization of Long term capital gain taxation may be inopportune in terms of timing as their ability to raise funds through IPOs and FPOs may be impacted due to market sentiments changing.

Understanding the impact on Foreign Portfolio Investors

The Indian Finance Minister presented the Union Budget 2018. The budget was presented against the backdrop of slower economic growth, rising crude oil prices and growing protectionist tendencies in some countries. The GDP growth for the current fiscal year (April 2017 to March 2018) is estimated to be around 6.5% as compared to the growth rate of over 7% registered in last 3 financial years. The slower economic growth is generally attributed to the recent bold reforms undertaken by the government including implementation of Goods and Services Tax (GST) regime to replace the multiple indirect taxes and demonetization of higher currency notes aimed at removing black money from the economy.

Union Budget 2018 - Base Erosion and Profit Shifting

For past few years, the Organisation for Economic Cooperation and Development [OECD] and G20 countries have actively worked on the base erosion and profit shifting [BEPS] project. BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profit ‘disappear’ for tax purpose or to shift profits to locations where there is little or no real activity but taxes are low, resulting in little or no overall corporate tax being paid. In light of several such instances resulting in BEPS, the G20 and OECD released their recommendation on 15 BEPS action plans (15 action plans) on 5 October 2015.