Speaking to CNBC-TV18, Sameer Gupta, National Tax Leader at EY, underscored the need for a simpler tax regime as a cornerstone of the government’s economic agenda. “The big thing in Budget 2025 will be on tax simplification,” Gupta asserted. He highlighted the importance of a moderate tax policy to enhance India’s tax-to-GDP ratio, which currently stands at 18.1% for both central and state revenues combined.
“If India aspires to join the ranks of the top three global economies, we must aim for a tax-to-GDP ratio of 30% or higher. This necessitates a regime that not only simplifies compliance but also minimises litigation, ensuring sustainable growth,” Gupta explained.
Bijal Ajinkya, Senior Partner at Khaitan & Co, echoed Gupta’s sentiments on tax simplification, adding that rationalising pending litigation will likely be a headline focus. “The volume of pending litigation demands urgent attention,” Ajinkya emphasised. She anticipates measures to streamline dispute resolution processes alongside targeted incentives to bolster the manufacturing and infrastructure sectors.
Meanwhile, Sunil Badala, Head of Tax at KPMG in India, anticipates a more measured approach in Budget 2025, following the transformative changes introduced in July 2024. “I think there will be minimal changes in this budget,” Badala said. He expects Finance Minister Nirmala Sitharaman to focus on refining the recently implemented tax code while avoiding significant disruptions.
The July 2024 budget was marked by sweeping tax reforms, including rationalising the capital gains tax regime, relief for taxpayers under the new income tax framework, and the abolition of the controversial angel tax. Experts believe Budget 2025 will consolidate these changes while addressing remaining challenges.
Edited Excerpt:
Q: If you look at budget 2025, what will the headline be?
Gupta: Even in the past, the government has been working on a sustained economic development program. So, you have your investment-driven growth regime and a lot happening on fiscal consolidation. The big thing in Budget 2025 will be tax simplification. And I think they’re going to continue down that journey.
So, two points from my perspective. Our centre-state tax GDP ratio is still at 18.1. We are already moving up the ranks in terms of growth in terms of economies. So, if you want to have a large economy and be in the top three, we need to get where everyone else is, which is 30% plus. So, a moderate tax policy regime with minimisation of litigation, I think would be the two big imperatives of the government going forward.
Q: What do you think the headline will be on the evening of February 1?
Ajinkya: I think further rationalisation and simplification of the tax laws, as well as a new regime vis-à-vis litigation, because the amount of litigation and the pending litigation itself requires a lot more of streamlining and a real, real boost to both the manufacturing sector as well as to just infrastructure.
Q: What will be the headline for budget 2025?
Badala: There will be minimum changes in this budget. There will be mention of the overall simplification of the new tax code, and in light of that, I think there will be just bare minimum changes.
Q: This announcement was made in July after reviewing the Income Tax Act. What is needed, and can the rates be changed as part of the simplification? What are you watching out for?
Gupta: If you step back to maybe the 2017-2018 era, there was a new direct tax code on the anvil. A committee was set up, the work happened, and a report was submitted. We’ve seen progressively some elements already brought in, like the whole deemed dividend taxation moving from company to shareholder. Many of those things were encapsulated in that code. So, many of the big things have probably been picked up from there. Therefore, the current situation is that the current act continues, but we still need to deal with many legacy matters. What are there in that? This is where the FM said last time that if we stay with the act, let’s look at simplification in reducing litigation, reducing compliance, removing redundant provisions, and simplifying the language. So, there are a lot of things over there that they can do. For instance, capital gains. They’ve touched it last year, bringing in a lot of reform. They could come up with a new chapter on that, which is a simple chapter to read with. Now, that’s a lot to ask for, but if you say, from a wishlist point of view, we should be getting to that kind of an outcome.
Watch the accompanying video for the entire discussion.
