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LATEST NEWS UPDATES | Pranab banks on indirect tax hike-Ashok Dasgupta

Pranab banks on indirect tax hike-Ashok Dasgupta

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published Published on Mar 17, 2012   modified Modified on Mar 17, 2012

Token relief to individual taxpayers will cost the exchequer Rs. 4,500 crore

In a “pragmatic and domestic growth-oriented” budgetary exercise aimed at shoring up investor confidence and investment, Union Finance MinisterPranab Mukherjee on Friday sought to tap indirect taxes, especially service tax, to rake in an additional Rs. 45,940 crore into his kitty.

Presenting the budget for 2012-13 in Parliament, Mr. Mukherjee provided atoken relief to individual taxpayers that will cost the exchequer Rs. 4,500 crore as a cushion from high inflation during most of the current fiscal, while raising both excise duty and service tax across the board from 10 per cent to near the pre-crisis level of 12 per cent as a step towards seamless transition to the proposed Goods and Services Tax (GST)when implemented.

As a consequence, even as prices of all non-oil goods are set to go up and are feared to add to the inflationary pressure, Finance Ministry officials sought to downplay the impact saying that the burden in the near term would get subsequently absorbed over a period of time.

With services accounting for more than one half of the country's GDP (gross domestic product) but not having a fair share in the overall revenue mop-up, the Finance Minister widened the service tax net to all services, barring 17 on the negative list. In all, he has sought to raise an additional Rs. 27,280 crore through customs and Central excise levies and Rs. 18,660 crore through service tax.

As had been expected, Mr. Mukherjee left the corporate tax rate untouched, chose not to tweak the peak customs duty and provided a slew of tax concessions to key infrastructure segments such as power, airlines, road and bridges and hospitals, cold-chain facility as also “affordable” housing.

The net effect of the imposts would be that while mobile phones, brandedsilver jewellery, branded garments, imported LCD and LED TV panels (of over 20 inch), among others, would turn cheaper, others such as two-wheelers, cars, refrigerators, air-conditioners, washing machines, watches, imported bicycles, gold, unbranded metal jewellery, soaps, air travel and “demerit” items like cigarettes, bidis, pan masala and chewing tobacco would cost more.

As for personal I-T, Mr. Mukherjee chose to extend the relief that was proposed in the Direct Taxes Code (DTC) for the salaried class by raising the exemption limit from the current Rs. 1.8 lakh to Rs. 2 lakh.At the threshold stage, it would mean a total relief of about Rs. 2,000. Alongside, the upper limit of the 20 per cent tax slab is proposed to be raised from Rs. 8 lakh to Rs. 10 lakh while those with income above Rs. 10 lakh will continue to pay 30 per cent tax. A deduction of up to Rs 10,000 has also been allowed for tax payers for interest from saving bank accounts. Thus, those earning up to Rs. 5 lakhand getting interest from saving bank accounts up to Rs. 10,000 will not be required to file I-T returns.

To attract more retail investors into the capital market, the Finance Minister reduced the Securities Transaction Tax (STT) by 20 per cent from 0.125 per cent to 0.1 per cent and also extended an income tax deduction of 50 per cent to new retail investors with income below Rs. 10 lakh who invest up to Rs. 50,000 directly in equities.

To support the ailing civil aviation sector, Mr. Mukherjee proposed to fully exempt from basic customs duty imports of parts of aircraft and testing equipment and allowed the national carrier to go in for externalcommercial borrowings (ECBs) of up to $1 billion. In keeping with the inflation level, he also hiked the duty-free baggage allowance for air travellers from Rs. 25,000 to Rs. 35,000 and for children (up to 10 years) from Rs. 12,000 to Rs. 15,000.

To get past the adverse court verdict in the Vodafone tax case on sale of capital assets in India outside the country, the government sought toamend the Income Tax Act retrospectively from 1962 to bring even 50-year-old deals under the scanner.

Also, to tackle the black money menace, the budget proposed relevant amendments in the law to compulsorily report assets and revenue held abroad and allowing for reopening of assessments up to 16 years in such cases.

As per the proposals, gross tax receipts for 2012-13 are estimated at Rs. 10,77,612 crore, marking an increase of 15.6 per cent over the budget estimates (BE) and 19.5 per cent over the revised estimates (RE) for 2011-12. Total expenditure for the new fiscal is pegged at Rs. 14,90,925 crore, of which Plan expenditure is set at Rs. 5,21,025 crore and non-Plan expenditure, Rs. 9,69,900 crore.

During the current fiscal year, the net effect of lower-than-targeted tax receipts, low disinvestment proceeds coupled with higher spending, mainly on subsidies for oil, food and fertilizer, has hiked the fiscal deficit to 5.9 per cent of the GDP in RE for 2011-12.

However, explaining the circumstances in which the numbers went awry, Mr. Mukherjee noted that he had made a “determined” attempt to come backto the path of fiscal consolidation in the budget for 2012-13 by pegging the fiscal deficit at Rs. 5,13,590 crore, which works out to 5.1per cent of the GDP.

Evidently, the fiscal deficit has to be made up through higher borrowings, and after taking into account other sources of financing, the Centre's net market borrowings through dated securities are pegged at Rs. 4,79,000 crore. With this total debt stock at the end of 2012-13,it would work out to 45.5 per cent of the GDP as compared to the 13th Finance Commission target of 50.5 per cent, while the effective revenue deficit in budget estimates 2012-13 works out to Rs 1,85,752 crore, which is 1.8 per cent of the GDP.


The Hindu, 16 March, 2012, http://www.thehindu.com/news/article3001916.ece

Tagged with: Budget



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