Union Budget 2022-23: Sectors are looking to make repair the losses that happened in terms of opportunities, money and growth because of the pandemic
The impact of COVID-19 has been grave for the past two years but the plus point is that economy is picking up. Stock markets have scaled new highs in 2021, with highs for a few sectors and mediocre growth for others. In the upcoming Budget, businesses, compatriots have a lot of expectations from the government. Everyone is looking to make good losses in terms of opportunities, money and growth which had been restricted due to the pandemic.
Regulations for cryptocurrency
The popularity of cryptocurrency is increasing day by day. With mounted aspirations, investors are looking for quick and easy returns without realising the downside of it. In the absence of specific provisions regulating cryptocurrency, what is appearing to be lucrative now may turn out to be monstrous in long run. It is expected that the government will bring about regulations and put a tax regime around it. Regulations with respect to taxability on sale of cryptocurrency, TDS obligations around it, reporting requirements, applicable tax rate and treatment of losses is need of the hour.
Specific policy framework around SPAC
The government has been mindful of growing businesses and their requirement with funding. It is evident from various new avenues such as Special Purpose Acquisition Corporations (“SPACs”), overseas direct listing, and cross-border mergers. However, the expectation is that the government announces a more specific policy framework, thus bringing better clarity around the transaction costs and compliances for these avenues.
For example, a foreign SPAC may look to acquire an Indian company and this also offers an avenue for a back-door listing of the Indian Company on Foreign Exchanges. For this, parties involved in the transaction may look to pursue a cross-border merger. However, in the absence of clarity around the regulatory framework for direct overseas listing of Indian Company shares or facilitating tax framework around Outbound Mergers, there is nervousness in the minds of stakeholders.
Concessional tax rate of 10% on LTCG for startups
Startups have always been one of the focal points of the government and 2021 has witnessed phenomenal growth in this segment. Startups boost entrepreneurial spirit and create job opportunities, which are vital for the growth of a young country like ours. To encourage domestic investments in startups, the government could consider introducing a concessional tax rate of 10 percent on Long Term Capital Gains from startup share/securities sale (on similar lines as existing on sale of long-term listed shares, and sale of long-term shares by non-residents). Apart from this, the current tax holiday benefits for eligible startups under Section 80IAC, and long-term capital gains exemption under S. 54GB (gains from the sale of residential property invested into eligible startups) may be extended for some more time to continue the growth momentum in this sector.
Exemption to share transfer under IBC transactions
Section 56(2)(x)/Section 50CA often poses difficulties in IBC transactions where neither the person transferring the shares (i.e. sellers/promoters) nor the person receiving the shares has control over the determination of consideration for the transfer of shares and where the consideration for such transfer gets approved by competent authorities like NCLT. An exemption to share transfers under IBC-related Resolutions plans on similar lines like cases covered under Section 241/242 of the Companies Act 2013, has been the need of the hour since inception.
Tax framework needed on Securities law
SEBI recently introduced a marquee amendment in Securities Law to allow delisting of a listed subsidiary of a listed Holding company, through an NCLT-approved Scheme. The said amendment envisages, a swap of shares held by public shareholders of the delisted subsidiary, with shares of the listed holding company. What remains still missing is the tax framework on such transactions in the hands of subsidiaries shareholders. Tax treatment for shareholders on similar lines like a merger/demerger is imperative for the success of this initiative.
Tax incentives for EVs
To boost sunrise sectors like green energy and ‘Electric Vehicles’ manufacturing, having a facilitating policy framework is vital to encourage investments and growth in these sectors. Introducing tax incentives in form of tax holidays, concessional GST regimes, etc. will facilitate making the products more cost-effective and consumer-friendly.
With India enduring the COVID-19 pandemic disruption, the businesses would hope the Union Budget 2022 add these key facilitators in the policy framework that can continue helping India emerge as the engine for global growth.
The author is MD and Head (Transaction Tax), RBSA Advisors. Views are personal.