India Budget 2015: much awaited test of Narendra Modi-led government’s conscience

Indian economy is a super-giant, which moves slowly but surely: Jaitley

By Rajiv Theodore

Rajiv-TheodoreNEW DELHI: Scores of ‘babus’ and their henchmen involved in the annual exercise of producing the Indian Budget, must have heaved a sigh of relief when Finance Minister Arun Jaitley finally read out the Budget for 2015-16, on Saturday.

Rightly so, for they had been holed up for nearly 10 days and nights within the huge thick walls of the British colonial structure, the North Block, which houses the Finance Ministry. All this was done totally cut-off from wired and wireless connections, including e-mails and phones. Even the food that enters the cold walls of the ministry was tasted under the watchful eyes of the Intelligence Bureau, the cloak and dagger department of the government.

Each year as this day approaches, millions of Indians are abuzz with activity on what the government would have in store for them that may or may not touch their modest lives.

Many corporates and industry members have been keeping their ears plastered to the ground on what the government would dish out that may or may not make or break their business. Not to talk about the various government sectors like infrastructure, defence and energy who await the government’s fund allocation jamboree on this day. And then many (proposed) policies are made and unmade on this day that has direct and indirect bearing on many foreign investors that have sunk billions of dollars into India and are awaiting clear-cut signals that would ensure their survival in the future.

Most importantly, the Budget is a much awaited test of the new government conscience – for its willingness to reform a $2 trillion economy which comes with a bloated public sector and weak private investments.

First, let’s look at how the Budget would impact the general citizenry:

For the smokers and consumers of tobacco their habits have become more expensive with the increase of service tax rate. This would also have bearing on making costlier other activities like air travel, eating out and paying bills.
Jitley said: “Excise duty on cigarettes is being increased by 25 per cent for cigarettes of length not exceeding 65 mm and by 15 per cent for cigarettes of other lengths. Similar increases are proposed on cigars, cheroots and cigarillos.”

But wearing leather footwear, domestically manufactured mobile phones, computer tablets, microwave ovens, even peanut butter, packaged fruits and most surprising of all ambulance services and solar water heaters have become cheaper. Prices of pacemakers would also become cheaper.

Visiting museums, zoo, national parks, wild life sanctuaries and tiger reserves would also become cheaper with the finance minister exempting such activities from the service tax.

Further, imported commercial vehicles, plastic bags and sacks will also become costlier as tariff rate of excise duty has been hiked. Cement, the key ingredient for construction activity will also become more expensive with excise duty being increased to Rs. 1,000 per ton from Rs. 900 per ton earlier. So will aerated, flavored drinks and packaged water will cost more.

In other takeaways, Jaitley said he would cut the tax on company profits to 25% over four years from the current 30%, high by international standards. However, a controversial set of new rules to fight tax avoidance would be delayed by two years.

Prime Minister Narendra Modi tweeted that the budget would “further reignite our growth engine”.

“People who urged us to undertake ‘big bang’ reforms also say the Indian economy is a super-giant, which moves slowly but surely,” Jaitley told Parliament as he wrapped up a 90-minute speech. “Even our worst critics would admit we have moved rapidly,” he said.

The 62-year old Jaitley, who is recovering from surgery for diabetes, sat down around 20 minutes during his speech and spoke seated from the front bench of the parliament’s Lok Sabha or Lower House.

In other takeaways, Jaitley said he would cut the tax on company profits to 25% over four years from the current 30%, high by international standards. A national goods and services would enter force, as planned, in April 2016 but a controversial set of new rules to fight tax avoidance would be delayed by two years.

The impact on sectors and other areas: General
• Sharp increase in outlays of roads and railways. Capital expenditure of public sector units to also go up.
· National Investment and Infrastructure Fund (NIIF), to be established with an annual flow of `20,000 crores to it.
· Tax free infrastructure bonds for the projects in the rail, road and irrigation sectors.
· PPP mode of infrastructure development to be revisited and revitalised
· Ports in public sector will be encouraged, to corporatize, and become companies under the Companies Act to attract investment and leverage the huge land resources.
· An expert committee to examine the possibility and prepare a draft legislation where the need for multiple prior permission can be replaced by a pre-existing regulatory mechanism. This will facilitate India becoming an investment destination.
· Five new Ultra Mega Power Projects, each of 4000 MW, in the Plug-and-Play mode.
Financial Market
· Public Debt Management Agency (PDMA) bringing both external and domestic borrowings under one roof to be set up this year.
· Enabling legislation, amending the Government Securities Act and the RBI Act included in the Finance Bill, 2015.
· Forward Markets commission to be merged with SEBI.
· Section-6 of FEMA to be amended through Finance Bill to provide control on capital flows as equity will be exercised by Government in consultation with RBI.
· Proposal to create a Task Force to establish sector-neutral financial redressal agency that will address grievance against all financial service providers.
· India Financial Code to be introduced soon in Parliament for consideration.
· Vision of putting in place a direct tax regime, which is internationally competitive on rates, without exemptions.
· Government to bring enabling legislation to allow employee to opt for EPF or New Pension Scheme. For employee’s below a certain threshold of monthly income, contribution to EPF to be option, without affecting employees’ contribution.
Monetising Gold
· Gold monetisation scheme to allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account to be introduced.
· Sovereign Gold Bond, as an alternative to purchasing metal gold scheme to be developed.
Investment

· Foreign investments in Alternate Investment Funds to be allowed.
· Distinction between different types of foreign investments, especially between foreign portfolio investments and foreign direct investments to be done away with. Replacement with composite caps.
· A project development company to facilitate setting up manufacturing hubs in CMLV countries, namely, Cambodia, Myanmar, Laos and Vietnam.

TAX PROPOSAL

· Objective of stable taxation policy and a non-adversarial tax administration.
· Fight against the scourge of black money to be taken forward.
· Efforts on various fronts to implement GST from next year.
· No change in rate of personal income tax.
· Proposal to reduce corporate tax from 30% to 25% over the next four years, starting from next financial year.

Key features of new law on black money:

♦ Evasion of tax in relation to foreign assets to have a punishment of rigorous imprisonment upto 10 years, be non-compoundable, have a penalty rate of 300% and the offender will not be permitted to approach the Settlement Commission.
♦ Non-filing of return/filing of return with inadequate disclosures to have a punishment of rigorous imprisonment upto 7 years.
♦ Undisclosed income from any foreign assets to be taxable at the maximum marginal rate.
♦ Mandatory filing of return in respect of foreign asset.
♦ Entities, banks, financial institutions including individuals all liable for prosecution and penalty.
♦ Concealment of income/evasion of income in relation to a foreign asset to be made a predicate offence under PML Act, 2002.
♦ PML Act, 2002 and FEMA to be amended to enable administration of new Act on black money.

Make in India

· Revival of growth and investment and promotion of domestic manufacturing for job creation.
· Tax “pass through” to be allowed to both category I and category II alternative investment funds.
· Rationalisation of capital gains regime for the sponsors exiting at the time of listing of the units of REITs and InvITs.
· Rental income of REITs from their own assets to have pass through facility.
· Permanent Establishment (PE) norm to be modified to encourage fund managers to relocate to India.
· General Anti Avoidance Rule (GAAR) to be deferred by two years.
· GAAR to apply to investments made on or after 01.04.2017, when implemented.
· Additional investment allowance (@ 15%) and additional depreciation (@35%) to new manufacturing units set up during the period 01-04-2015 to 31-03-2020 in notified backward areas of Andhra Pradesh and Telangana.
· Rate of Income-tax on royalty and fees for technical services reduced from 25% to 10% to facilitate technology inflow.
· Benefit of deduction for employment of new regular workmen to all business entities and eligibility threshold reduced.
· Basic Custom duty on certain inputs, raw materials, inter mediates and components in 22 items, reduced to minimise the impact of duty inversion.
· All goods, except populated printed circuit boards for use in manufacture of ITA bound items, exempted from SAD.
· SAD reduced on import of certain inputs and raw materials.
· Excise duty on chassis for ambulance reduced from 24% to 12.5%.
· Balance of 50% of additional depreciation @ 20% for new plant and machinery installed and used for less than six months by a manufacturing unit or a unit engaged in generation and distribution of power is to be allowed immediately in the next year.
Ease of doing business
· Minimum Government Maximum Governance ¾ Simplification of tax procedures.
· Monetary limit for a case to be heard by a single member bench of ITAT increase from 5 lakh to15 lakh.
· Penalty provision in indirect taxes are being rationalised to encourage compliance and early dispute resolution.
· Central excise/Service tax assesses to be allowed to use digitally signed invoices and maintain record electronically.
· Wealth-tax replaced with additional surcharge of 2 per cent on super rich with a taxable income of over 1 crore annually.
· Provision of indirect transfers in the Income-tax Act suitably cleaned up.
· Applicability of indirect transfer provisions to dividends paid by foreign companies to their shareholders to be addressed through a clarificatory circular.
· Domestic transfer pricing threshold limit increased from
5 crore to ` 20 crore.
· MAT rationalised for FIIs and members of an AOP.
· Tax Administration Reform Commission (TARC) recommendations to be appropriately implemented during the course of the year.
· Education cess and the Secondary and Higher education cess to be subsumed in Central Excise Duty.

(Rajiv Theodore is a journalist based in Delhi. An alumni of St. Stephen’s College, he likes cooking, traveling, and contact sports.)

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