Host of measures likely in Budget to boost investment climate

Finance minister Arun Jaitley's union budget, due to be unveiled on 28 February, is expected to contain a package of measures to lift investment sentiment and turn the country into a preferred destination for foreign capital.

According to The Economic Times, it may have an increase in customs duties on select products to encourage domestic manufacturing, changes in the minimum alternate tax (MAT) for foreign portfolio investors, and the implementation of some recommendations of the Partho Shome panel on indirect transfers.

The General Anti-Avoidance Rule (GAAR), introduced in the 2012-13 budget and then delayed until the 1 April 2016, assessment year, is expected to be deferred further in line with demands from industry.

A revival in investment is critical for stronger economic growth, but the data does not show any conclusive pickup in this respect. Gross capital formation rose only 3 per cent in FY14 after contracting 0.3 per cent in the year before.

The team drawing up the budget is also being careful to avoid potential traps, such as the retrospective amendment on taxing indirect transfers, which could undermine investment sentiment.

The government is also taking a comprehensive look at the impact of free and preferential trading arrangements on a number of sectors and will see if there is scope to bring about a correction in the duty structure as also up the taxation structure as it relates to foreign investors.

 The finance ministry is also deliberating an improved investment allowance, a scheme that was announced in Jaitley's first budget.

Another issue that is being examined closely is the levy of minimum alternate tax (MAT) on foreign portfolio investors, some of whom have received notices from the tax department after tribunals backed the imposition of the levy in some instances.

The suggestions by the Shome panel that could be considered include keeping share transfers in listed companies out of the tax ambit and a clear definition of what construes 'substantial' share transfer for tax purposes to encourage private equity.Measures to boost infrastructure funding and deepen the corporate bond market are also being discussed and could form part of the Budget.

The government has already taken steps to ease many tax-related concerns, raised foreign direct investment limits in some sectors, and issued a series of ordinances to address legal issues. The government has also been chipping away at red tape to make it easier for investors to do business in the country.