Budget must improve indirect tax code, says Akshay Hegde

By Mr. Akshay Hegde

The union budget needs to focus on policy measures that will turn around the economy and set it right on a growth trajectory. The government should strive to increase the disposable income of the middle classes so that discretionary spending will rise. Realigning the direct tax slabs and raising the tax exemption limit to 5 lacs will boost the consumption power of the masses and this, in turn, will lead to an increased demand for goods and services. Any tax loss from this move will be more than compensated by the growth in consumer spending and the subsequent increase in indirect tax proceeds.

There is still room for improvement in the indirect tax code. In times where credit growth is hurting, concrete steps should be taken to improve the cashflows and reduce the working capital burden on start-ups and SMEs. The finance ministry had earlier mentioned that it was looking into the taxation of ESOPs to address the issues that curb its effectiveness as a compensation tool. Most start-ups and companies put to use employee stock options to incentivise their workforce and retain top talent. However, current tax laws mandate that ESOPs are taxed twice – first, as a prerequisite at the point of exercising the stock option, and second, as capital gains at the point of selling it. Deferring the collection of the tax to the point of sale rather than the point of vesting will greatly enhance its efficacy as a compensation instrument.

(The author is Co-founder & MD at ShakeDeal)