Ajit Dubhashi, Chief Financial Officer (CFO), Zensar Technologies

Highlights
• Good growth oriented budget
• Emphasis on Education and Computer price reduction good for development
• Clarifications sought about BPO taxation still awaited
• Telecom FDI increase will boost the telecom industry and ensure proliferation
• Domestic Software industry will benefit since computerization should accelerate.

Mr P Chidambaram's budget reflects the CMP agreed upon by the Congress and its allies by giving thrust on agriculture, primary education, health and
infrastructure. The additional amount proposed to be spent, together with incremental credit through institutions will have positive bearing on
economy in midterm. This will result in increased disposable income for the population in rural India resulting in economic push by increasing demand.
The Finance Minister has also introduced fiscal discipline by committing to bring down the fiscal deficit to '0' by 2008-09. The current year's fiscal
deficit of 2.5% of the GDP would result in managing the inflation. The effectiveness will depend upon the success of implementation and execution.

The Finance Minister is keen to increase the FII presence by simplifying the procedure for registration and increasing the investment cap in few
important sectors of the economy viz. telecom, insurance and civil aviation. The introduction of the Bill for regulating Special Economic Zones and
establishment of five SEZs will push exports in due course once the rules and regulations are announced. The implementation of VAT from 1.4.2005 and
giving 100% exemption from profits, for a period of five years to specific industries such as agro-processing and hospital will push investment in
those sectors.

Setting up of a Board to make the manufacturing sector competitive in international market is welcome. More push to be given for foreign direct
investment.

From the Share market perspective, the abolition of long term capital gains and reduction of rate of tax on short-term capital gains from shares to flat
rate of 10% is welcome. This will bring retailers on par with FII.

A 2% increase of education cess to be spent on rural education and free meal scheme is palatable as is the increase in service tax from 8% to 10%.

The dilution of Govt. holding in PSUs, which will be decided on a case-to-case basis, is a good signal to the market.

On the whole, the budget is positive for the IT sector and continuity of fiscal concession is welcome. However, the benefit of GDP growth is
entirely depends on the investment policies.

Anantharaman, Director, Max India’s Group

Insurance and Telecom Sector
The enhancement of FDI in Insurance sector from the present limit of 26% to 49% and in the Telecom sector from 49% to 74% is a welcome step. This would help the Insurance and the Telecom industry to infuse additional capital. This relaxation would also accelerate growth of the Pension and Health Insurance Businesses.

Healthcare sector
The proposal to allow tax concessions to Hospitals in the rural sector will reduce the cost of healthcare services. However, considering that healthcare is a necessity for every individual, the tax concession should also have been made available to hospitals in the urban area as well.

The abolition of long term capital gains tax and the reduction in tax rate of short term capital gains would give impetus to the Stock Market.

However, some of the recommendations of the Kelkar Committee have not been met. The increase in service tax from 8% to 10% and widening of service tax net would increase the cost of services thereby adversely effecting the rate of inflation.

S. Thirumalai, Former FAPCCI President

On a quick analysis of the budget, three things really worry me.

1. The extension of Excise Duty exemption to States like Uttaranchal and Himachal Pradesh has adversely affected industrialisation in other States. In Andhra Pradesh, several industries are closed and some are on the verge of closure because of this exemption. This kind of regional imbalances is bad for the industry.

2. The two percent CESS introduced right across the board causes lot of worry. What causes concern is that incidence may be far higher than the two percent as appearing on the face of it and there would always be the temptation to hike this.

3. What is more unfortunate is that this two percent is right across the board and the even SSIs are not spared from this impost. When you talk about SSI units needing support and assistance, it is unfortunate that they are struck with an additional burden to two percent. I strongly feel that the SSIs should have been exempted from this two percent CESS.

J. Ravi Kumar, Deputy General Manager – Taxation, Larsen & Toubro Limited

Over all it is very pragmatic budget giving emphasis on agriculture, fiscal consolidation. But there are some areas of concern like introduction of cess on all net tax collection , transaction tax on .Some set off mechanism needs to be provided on CESS otherwise this will shoot up inflation across the board .There must be a sunset clause for this CESS and should not be allowed to settle down . Like wise we need to see the fine prints on the mechanism of integration of goods and services for availing setoff against each other. This is really a welcoming measure. On personal taxation front, it is disappointing that not many concessions were granted. It was a long felt need of salary clause that slab rate needs to be fine-tuned. But this left untouched. Peak custom duty rate remain untouched. All said and done, our FM deserves compliments for having managed to walk through the tight rope called budget.

D. Arvind, Director, Deloitte Haskins and Sells

Service Tax
Contrary to the expectation of tax payers/ industry, the “Export of services” has not been defined yet. The draft Circular F. No. 137/8/2001 CX 4 of CBEC that proposed to define Export of services for various categories of services should have been finalized and put in place to avoid unwarranted litigations.

Increase in service tax rate from 8% to 10% is as expected. In fact, many believed that it could go upto 12% and to that extent the Finance Minister has been generous.

Integration of Service Tax with excise duty is also as expected and it is welcome step towards single VAT. This should benefit the manufacturers who have been paying huge service tax on the services availed by them for the purpose of manufacture of excisable goods.

In Service tax the exemption that was available for commission agents has been removed. I did not find any logic even in the first instance for such an exemption, and therefore, this loophole has been rightly plugged.

The scope of `business auxiliary services’ has been expanded to include services relating to production of goods. However activities amounting to `manufacture’ are specifically excluded from the scope of Service Tax.

This would mean that if an activity, say, labeling or relabelling which would not amount to “manufacture” under Excise, then it would get covered under Service tax. This would seriously affect the job workers who are not engaged in “manufacture” as defined under Excise.

Service Tax is being imposed on 13 other additional services, which includes airport services, transportation of goods by road, transportation of goods by air, construction services in respect of commercial or industrial buildings, etc.

Certain existing services are being extended as follows:

1. Commission and installation of plant, machinery or equipment to include “erection” thereof.
2. Stock brokers to include `sub-brokers’.
3. Cable operator service to include `Multi System Operators (MSO)’.

Excise
The much talked about rationalization in valuation provisions in respect of goods manufactured by job workers for the purpose of Excise has not happened. Therefore, the principle laid down by the Supreme Court in the case of Ujhagar Prints, would continue to apply and this should be a welcome relief to thousands of Manufacturers as well as Job workers.

Major concessions have been given to the Textile industry and the players in the textile industry are allowed two options under Excise..

Additional Excise Duty (GSI) paid on inputs on or after 1st April 2000, would be available for utilization towards payment of CENVAT duty.

Textile and Textile articles falling under Chapter 50 to 63 have been fully exempt from additional excise duty (GSI) and additional excise duty (textile and textile products). The Excise Duty on Iron and Steel falling under Chapter 72 has been raised from 8 to 12%.

Customs
Reduction on duties of customs particularly with reference to metals, raw materials for metals, should benefit this industry.
CVD exemptions have been withdrawn, and this should benefit the local manufacturers of those products in respect of which CVD exemption was there till today.

K N Srinivasan, General Manager, Finance, Sify Ltd.

It is a development-oriented Budget. It will give a boost to the capital markets as relief has been given to capital gains.
The increase in the foreign investment allowed in the current Budget will give a major boost to the telecom sector.
The finance minister has increased the service tax and broadened the net and this will bring in revenue to fund his social sector commitments. Our feeling is that the increase in service tax could have been avoided.
 
A cess of 2% is proposed to be levied on all tax, which will fund the social causes, but the minister could have had a different source of funding instead of taxing the common man.
 
However the final concern is whether the government will be able to curb its fiscal deficit to what the finance minister has promised.

V G Gopalakrishnan, CFO, Colorplus Fashions Ltd.

Industry specific benefits:

A. Abolotion of mandatory cenvat regime would provide a tremendous opportunity to optionally come out of the cenvat chain.

This would also help the domestic branded industry to be competitive in the post quota regime when international brands are likely to enhance their presence in india.

B. Exemption of handloom and powerloom sectors is a laudable move.

C. Rationalisation of excise regime would help the industry to prepare itself better for the vat regime in 2005.

D. Branded apparel industry which had witnessed a gradual reduction in bottomline from 2001 when excise duty was imposed would heave a sigh of relief and can strive to enhance the market share and improve profits.

E. Rationalisation of excise duty for cotton industry at 4% is another laudable measure and this would only bring in better growth and margins for the cotton textile industry which has been going through a bad patch over the years.

Dr. Pradeep Chowbey,Chairman - Department of Minimal Access Surgery, Sri Ganga Ram Hospital, New Delhi

It is an excellent budget. Government has expressed their keenness and priority to the healthcare industry. It is a great historical budget for the medical industry and hospital. It will certainly enhance the quality of treatment at a reasonable cost.

The new group health insurance scheme is a wonderful idea. I think it will greatly benefit the low-income group persons, who finds it difficult to afford high-tech surgery and expensive medicines. Full exemption from custom duty on rehabilitation aids such as artificial limbs, cochlear implant etc will be a great help to these needy persons who otherwise have to bear high cost of these rehabilitation aids and will certainly improve their quality of life."

Rajul Chandola, CFO, Easter Industries

A) Positive Aspect :-

1) Service tax and Cenvat have been made vatable against each other (w.e.f. the enactment of the bill)

2) Cess on these too has been made vatable against cess on each other.

3) Cenvat options given to the fibre/yarn/textile sectors is good.

4) I.T.rates have not been touched.nor have customs or excise rates generally.

5) Increasing FDI limits in telecom, insurance and civil avaition is good.however with intrest rates firming up in usa and europe there has been a major outflow recently. i wonder if this will stem the rot.

6) VAT WHEN IT IS IMPLEMENTED ON 1/4/05 SHOULD ALSO BE VATABLE.CST SHOULD BE ZERO.

7) Compounding of disputes in customs and excise enabled by chief commissioners.

8) Short term cap. gains reduced from 33% to 10%.

9) Removing excise from tractors and computers.

10) Concentration towards health,education and the rural economy.however funds allocated are small and will make little difference.govt.dosent have the money.


B) Negatives Aspects:-

The FM has been very clever and has taxed everyone to a slow and painful death as we gradually realise the implications of the fin.bill. but it was probably a necessity otherwise where are the funds going to come for developing/boosting rural areas/rural economies,the health,education and infrastructure sectors.

1) Cess on TOTAL Customs Duty (which comes to 0.792% of the CIFvalue) is not vatable. Cess only on CVD is vatable.raw mat.cost for industry goes up.prices overall go up therefore.

2) Cess on service tax,income tax,customs and excise will make everything costlier.

(2a) Instead of levying one more duty and complicating life for everyone rate of taxes could have been raised.but the FM has cleverly given the impression that edu.cess is an innocous ,piddly little tax which will have little adverse impact.however the truth is otherwise.

3) 0.15 % turnover tax payable by the buyer on equities/securities will have a -ve impact on the stock markets.which upto now has shown little confidence in the new team in place.this will especially effect small players who trade on a daily basis.

4) Tax dept to issue form 16 : this is uncalled for and will lead to corruption levels going higher.

5) Increase in service tax by 2% will make everything one touches costlier.

6) No incentives for savings have been given.in fact people are being dissuaded to save. what do we do in our old age as there is no social security anyway in our country and intrest rates on savings are headed southwards?

(6a) The theory is when people do not save they will spend and boost demand and economy.but in order to spend people should have money which the FM has already taken out of their pockets before and during the budget.

(6b) Another fallacy in this theory is that the basic nature of indians is of the thrifty/saving kind unlike the westerners.this inherent nature has not been considered.

7) The Rs. One lac exemption limit is a clever piece of work in which no one benefits and the tax structure remains essentially the same( please read P.Chidambrams interview on front pg.of HT of 9 july in which he says:rs.50 k is exempt,rs.30k is std.dedn.and another rs.20.k can be gotten as rebate by investing to make up the rs.100k.bingo, there you are stuck with a lemon. This is as i understand it.

8) Gifting some Rs.3200 crores to Bihar and putting it at par with insurgency strifen n.e.states and j &k amounts to rewarding inefficency.let us see where this money finally goes.it does give one fodder for thought.

9) The scope of financial services has been expanded to cover a host of services which will affect the common man such as charges pertaining to issue of pay order charges, cheque book charges, demand draft charges, letter of credit, bill of exchange, bank guarantee services, overdraft facility, bill discounting facility and locker facility.

Padma Shree Dr JM Hans, Head , ENT Unit, Ram Manohar Lohia Hospital, Delhi

I find the announcements made by the government in the Union Budget step in the right direction.Especially I feel that the announcement regarding full exemption of customs duty on rehabilitation devices like cochlear implants would be highly beneficial not only to the persons with disabilities but their families as well who have to bear the expenses of the treatment. A 5% custom duty exemption would roughly translate into a rebate of Rs 25,000 and I feel that every penny which is saved would be used in their rehabilitation and would help make their life a bit easier.

Pranav Roach, President - Hughes Network Systems India.

The proposed Budget for 2004-05 focuses on growth and development. The Government has rightly identified the telecom sector as a key sector that will drive growth.
 
We welcome the proposal to raise telecom FDI to 74% from 49%.  The telecom sector is among the top FDI destinations in the country. Going forward, estimates indicate that to scale up the telecommunications infrastructure to global standards, the sector will need investments of upto USD 8 billion. Despite the 40 per cent growth in telecom sector, India needs to do a lot of particularly with respect to teledensity, Internet usage and convergence.
 
Convergence issues have not been addressed. Convergence of telecommunication technologies needs to be addressed in the context of promoting social, political and economic goals. From a technology point of view, convergence is no longer a question about what will be possible in future. It has already become a reality. In several countries including India, triple play - TV, telephony and internet access over one medium such as terrestrial (cable, fiber or wireless) or satellite is not only possible but also widely prevalent.

Rangu Salgame, President (India & SAARC), Cisco Systems

The FM mentioned the need for thought and passion in Governance - and his proposals reflect that, by encouraging investments across all key sectors of infrastructure, industry, agriculture as well as services.

Cisco specifically welcomes the proposal to increase telecom FDI to 74%. The move to abolish duties on PC's as well as rationalization of duties on telecom infrastructure is positive. These initiatives are expected to drive demand within the economy and help further improve business productivity.
However, the FM has restrained supply - by keeping peak rates of customs duty constant, even as he mentioned that the duty rates need to come down to the ASEAN levels in the future.

For overall growth, both the demand and the supply sides should have been provided the right impetus.
The Indian Budget has thought and passion - now, it is for the Government to follow through and implement; and for the market to invest.

Ashish Chowdhary, Country Head - India & South Asia, Nokia Networks

From a telecom perspective, this year's budget reflects the Government's focus on Telecommunications as a key infrastructure sector and its efforts to provide impetus to one of India's fastest growing industries. 

The initiatives to raise the FDI limit and exempt MSCs from import duty  are a welcome move and will help mobilize much-needed investments and drive down the cost of telecom equipment , further  accelerating overall growth in the sector. These initiatives will supplement the operators' efforts to build telecom infrastructure across the country and provide affordable services to the masses and help India move quicker towards becoming a wireless dominant country.

Manoj Chugh, President, EMC- India & SAARC. 

"As a significant investor in India, we welcome the growth focused budget presented by the new government. It is investment friendly, continues the reforms process and focuses on development in infrastructure and education, all of which will have a multiplier effect throughout the economy. I especially welcome the government's focus on technical skills development and R&D in India, and also the impetuses given to the Telecom and IT sector, through the hike in FDI and removal of duties and taxes. These initiatives will create a strong domestic IT market and are critical building blocks for India to become one of the leading knowledge economies in the new millennium."

Ravi Venkatesan, Chairman & Managing Director, Microsoft Corporation India Pvt Ltd

I feel that overall this is a good budget; it is pro-reform with a clear thrust on the social sector and public welfare and at the same time it sets expectations for bold policy initiatives in the next year's budget.

The government's consistent focus on positively impacting the life of the common person is commendable which reflects in the budget announcements made today, tying in perfectly with their focus on reforms with a human face and their previously announced Common Minimum Program. The overall emphasis on the rural / agricultural sector, infrastructure and health is indeed welcome as is the focus on generating employment.
 
With education emerging as a key priority area (with a 2% cess on all taxes to fund education) - quality of the overall education delivery process at the school level becomes a critical factor. This is where I feel IT as an enabler comes in for redefining the way education is imparted and for creating a more digitally inclusive society.
 
Also, the Finance Minister's decision to allow a full exemption of excise duty on computers is a very positive step towards accelerating the overall PC penetration in the country. This in turn should stimulate the domestic industry, increase off take of computers and thereby increase the opportunity for delivering a higher level of citizen centric IT services by both by the government and private players.

We also welcome the streamlining of the process for attracting FDI into the country. This will encourage the inflow of investments as would the setting up of Special Economic Zones with fiscal incentives. Particularly, the increase of FDI in the Telecom sector as well as concessions given to the Cellular service providers will give the much needed fillip to the telecom sector in the country as well drive broadband penetration.

Overall, we strongly believe that both the excise waiver on PCs and the stimulus given to the telecom sector will drive IT penetration in the country and will enable access to the Internet and broadband at internationally competitive rates.

R G Sarda, President, The A.P. Tax Bar Association

LACK LUSTRE BUDGET 2004 
 
The Budget 2004 presented by Hon'ble Finance Minister lacks vitality and proceeded on the same thinking as in the past. However, he has promised to give new direction in the Budget 2005. The followings are positive and negative proposals.
 
Positive
a) No income tax on income upto Rs. 1,00,000/-
b) Senior Citizen Savings Scheme carrying interest @ 9% p.a.
c) Value Added Tax will be enforced w.e.f. 01.04.05.
d) No tax on LTCG on sale of securities. However, securities are subject to 0.15% transaction tax.
e) STCG on sale of securities will be taxed at flat rate of 10%.
f) No Capital Gain tax on urban agri lands on compulsory acquisition.
g) No collateral security on education loans upto Rs. 7.5 lacs.
 
Negative
a) Service Tax rate increased to 10% from 8%. Even risk premium are subjected to service tax.
b) Gifts in excess of Rs. 25,000/- from unrelated persons are taxable.
c) Education Cess @ 2% on all taxes.
d) No increase in interest rates on small savings.
e) Inflation indexed bonds not introduced.

2. Family pension is exempt in the hands of widows and children of ex-service personnel.  A genuine gesture.

3. Exemption of capital gains tax on sale or acquisition of agriculture lands even if they are situated within the municipal limits of cities.

4. The FM has brought to tax the interest on NRE and NRI Deposits with banks. Hitherto the interest income from these deposits is exempt. However this may lead to withdrawal of funds from banks and the money may move to capital markets.

5. The FM has made a major amendment to Gift Tax.  Henceforth gifts received from unrelated persons will be brought to tax.  However, gifts received from blood relations, gifts received at the time of functions like marriages etc. will continue to enjoy the exemption from tax.

6. The Long Term Capital gains, now taxed at 10%, is now removed in the case of transactions in equity shares.  The Short Term capital gains, which was at 30 % now, will be taxed at 10%.  The FM has introduced a marginal transaction fee on all stock exchange deals.

The above are some of the changes brought in by the FM.  However, much might be in store as we read the  Finance Bill .

"Union Budget 2004 - Incentives that will make PC's house hold devices"

AMD welcomes the Union Budget 2004 - the Finance Minister has presented a forward looking budget that provides a big impetus to the Indian Hardware industry by bringing down the cost of IT hardware and creating a larger domestic market by identifying technical education as a thrust area.

By abolishing the excise duty on computers (from 8% to 0%), the Finance Minister has significantly reduced the cost of owning a personal computer and I expect this to act as a trigger for the large scale proliferation of PCs turning them into common household devices. Additionally, the incentives announced for developing low cost IT infrastructure and upgrading technical education standards across the country should also spur growth of the domestic hardware industry.