Indian Budget Pleases Nobody

By Global Tax Weekly

India’s 2018 Budget barely registered a blip of the excitement scale. But it is still worth mentioning for a number of reasons. Not least because Finance Minister Arun Jaitley has managed to upset pretty much everybody with some unpopular – some observers say misguided – measures. I thought it was in the politician’s DNA that, as a minimum, they at least attempt to please some of the people, some of time, so this could be considered something of a rate feat.

For a Government that has prioritized foreign investment and improving its “doing business” ratings, this is a strange Budget indeed. Investors have immediately seized upon the proposal to reintroduce a tax on long-term capital gains, which was replaced by a securities transactions tax back in 2004. However, the latter tax remains in place, increasing the prospect of cascading taxation for investors in Indian equities. Worse still, as drafted, the tax will apply retrospectively for foreign investors. Whether this is by accident (a drafting error has been suggested), or by design, nobody is quite sure yet.

What seems more certain is that, with this Budget, the Government threatens to undermine the progress it has made towards improving its tax and regulatory framework since coming to power in 2014, with the introduction of GST among the most important reforms of recent times. This progress is reflected in the just-released Doing Business Index by the World Bank, which places India 100th in a league table of 190 jurisdictions. A lowly score you might think for such a major economy. Yet, this is a substantial improvement on last year’s ranking of 130th. It would be a shame therefore, if 100th place was the best investors could expect.

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