Budget 2017: Expect job creation to be a guiding theme, says BMR Legal

In the upcoming Budget, job creation is going to be the guiding theme, Mukesh Butani, Managing Partner of BMR Legal. Incremental jobs are needed as sectors like textile, leather have lost jobs, he adds.Naina Lal Kidwai, Chairman Of Max Fin Services says government's schemes like Swachh Bharat can be big job creators.Kidwai also adds that tax on cash withdrawal may be a way to boost digital payments. The Rs 50,000 threshold for cash withdrawal tax may be low, he says. The government needs to ensure there are no moves that disincentivise digital payments.Ravi Uppal, the Managing Director and Group CEO of Jindal Steel and Power says he hopes the government will reduce the corporate tax rate to 25 percent in this Budget. The government should also help boost the consumption in the country and there is a need for a demand stimulus to kick start investment in the country, says Uppal.He expects no cuts in Railway freight rates in the upcoming Budget.Below is the verbatim transcript of their interview to CNBC-TV18's Shereen Bhan Q: If I could categorise this Budget as per themes - the number one theme that I am getting to pick up from my sources is going to be job creation. This will be a way for the government to send out a message that this government wants to bet on creating jobs. It could be aiding labour intensive sectors like leather, textile etc, the government could look at sops for small and medium enterprises (SMEs). Do you think the job creation is going to be one of the big pillars of the Budget? Butani: It would be certainly a big pillar and I think when you talk about job creation you need to distinguish between the ability of a private sector led investment job creation versus a public sector led. The government has reached its cap in so far as investment in public sector and the ability to create jobs is concerned. So that means that if it has to revive the private investment cycle, it needs to make sure that more jobs are created and incremental jobs are required also because there are certain segments that have lost out on the jobs particularly on the temporary side. You talked about textile and the leather sector. So, kick-starting the investment cycle in the private sector which will result in job creation is certainly going to be the guiding theme. Q: One of the other guiding themes of this Budget is likely to be a further push towards digital payments - this in the context of what we have seen happen with demonetisation. We have seen the Naidu panel submitted its recommendations to the government. They have recommended a cash withdrawal tax on withdrawals of above Rs 50,000 and more. Will it be announced in the Budget or not, we do not know. The special investigation team (SIT) had recommended a cap on large ticket cash transactions and that has also now been recommended by the Naidu Panel. Will that be taken forward, we do not know. There are likely to be more incentives to move people towards cashless transactions, subsidy on things like smart phone purchases etc, perhaps even lower or zero merchant discount rate (MDR) at least as far as digital transactions, when it comes to government entities are concerned. What are you expectations when we talk about the second pillar which is likely to be the thrust on digitising India? Kidwai: Given this big shock the economy has had through demonetisation; it would be a shame if that big advantage that has come from it, which is digitisation is not taken forward. So a lot of the measures which you mentioned are clearly in that direction and they would be important to see go forward. There are other ways where this digitisation could work, which is including continuing to encourage new players in the space as well which is the delivery because do not forget thus far there are interconnection costs and cost to doing transactions in a digitised way which have been waived but that can only be temporary. We need the providers of these services to be profitable and sustainable and those costs are going to come back into the system. So how those costs are dealt with now, become quite important and the significance of a Budget is to recognise that there may be subsidies aside but ways in which some of these costs can be further looked at. So that the advantage that was come from waiving these costs continue. I just want to add on the employment because it is such a big one that we have to look beyond just the large labour intensive private sector investments - labour, textiles as you mentioned into the public provision or the provision of public goods and what I mean by that is huge programmes like Swachh Bharat where so much money is being spent rightly in the whole area of creating the capacity both physical and otherwise. However, we need people who can take these activities forward and that can be a huge employment generator. There can be four profit models of people who enable to engage with our municipalities to fill the gaps that the municipalities leave when we look at things like Swachh Bharat. The Budget can help in terms of creating some of the environment which enables such four profit models to emerge in the delivery of public goods because that could be the green jobs of tomorrow. Q: Do you believe that a cash withdrawal tax above Rs 50,000, as is being recommended is a good idea and would you bet on that being announced in the Budget? Kidwai: Personally, Rs 50,000 may be a wee bit low because there are businesses that still run on cash and not because they like to but because they have to just because of what they employ. So, maybe to raise it, but a tax on cash withdrawal is certainly a way to look at it. But the more important one as I mentioned earlier is to look at how the costs of the digital spend get handled because right now, it is being artificially pushed down because of the dictate. But as those costs come back, we need to make sure that people are not disincentivised from staying in the digital stream. Q: Let me ask you about one of the other pillars that we are likely to see this Budget address. And in a sense, it is a dilemma as far as the government is concerned. How do you deal with indirect taxes because you have the goods and service tax (GST) being rolled out hopefully, on July 1. So, the question is will the Finance Minister leave the rates untouched or are we likely to see some movement towards the GST rates? Will the Budget commit to a GST rollout date of July 1? Is that you expectation? Do you believe the service tax rate will be hyped closer to 18 percent if not 18 percent? Will the duty be hiked at least on demerit goods like cigarettes, etc. in line with what the GST proposes and do you think that the GST compensation fund by way of a cess will be announced in this Budget? Uppal: One thing is very clear that the government as well as the opposition, they are all very keen on introduction of GST. The differences still remain as to who should get how much. So, that will be ironed out and now, everybody is expecting that the GST will come into effect by July 1. The challenge right now is that when we are making the Budget, we are doing based on the norms of the old regime. The question is how do you migrate on July 1 to the new system and what kind of rates will be done. So, that is going to be a huge challenge for the Finance Minister as well as the State Governments. Q: So, do you believe that this is going to status quo or at least as far as indirect taxes are concerned or do you see them moving? Butani: The Revenue Budget exercise is going to be a very complex one this year because you cannot estimate the indirect tax revenues particularly excise and services taxes for the entire year because if GST has to come in, you can estimate only customs. So, what I am expecting to see is the revenue side of the Budget would say estimation of excise and service tax till the first quarter and thereafter, the 50 percent share of the revenues of the Central Government that will come in through the GST. To your other question, should the rate of service tax be increased to align close to 18 percent, I would not be surprised if it happens. But there is also a talk in the last few days that should we have two rates of service tax like you have multiple rates for goods. That would be in my view a disastrous kind of a view if they do that because you cannot have a concept of merit service or demerit service. It is like saying that if you have a meal in a small restaurant, you pay service tax at a demerit rate. Q: So do not make it any more complicated than it already is? Butani: I would rather like to live with a simple GST on services and say that either the rates increase or they are aligned to increase that will happen along with the GST rollout.