Finance Bill 2009: Dream to Reality Check

By Somesh Arora, Former Commissioner of Customs & Central Excise

STOCK-markets which in any case were waiting to fall found a trigger. Analysts who were waiting to use the term 'dream' again sat before cameras with their made up faces dropping down. FII's who were waiting with their bags full of money to invest found another cause to wait and condemn Indian system which continues to need another dosage of reform (read `deregulation' of corporate world). Newspapers and channels who were vying for honour to be the fastest ones about breaking news about Budget, so much so that some even took the Journalism out of realm of reality to the world of speculation by planting stories with confidence about what was coming in the budget ( as if they were the ones being consulted by the FM at every step) and were thus making the stock markets dance to their tune, were left biting the dust. Hats off to Mandarins in the Finance Ministry for showing that Budget document is still their exclusive preserve and they decide what is good for the country and not lobbies planting stories in Media showing what is good for them is good for the Nation. Again, kudos to them for not allowing infiltration of corporate and media lobbies in the exclusive domain of budget making, even if it meant springing surprises for the stock market. This is one thing about budgets which has remained conventionally the same, even when everything else has changed so much. Only decades back, there was this time, when intricacies of the budget which used to be so many with hundreds of exemption notifications getting effected in every budget, multifarious duties being restructured, were analysed for days and then distinguished analysts like Mr. Palkhiwala used to give his elaboration before people full of stadium listening with rapt attention. Now, we have stadium full of analysts vying with each others at various channels and print media to be seen or read by some people atleast. (Yours truly being no exception to the class of such stadium wallahs).

Coming to the budget, I would personally rate it “very good” on a reality check, though the new –old FM may have been found wanting on articulation. But who minds that till the contents have the substance. Here is a FM, who raises exemption limit of `Wealth Tax” from 15 lakhs to Rs. 30 lakhs, a much needed reform and does not even mention it in his budget speech. Perhaps more time has been spent on budget making rather than on budget speech making.

Count the good features:

++ Exemption limit of wealth tax raised by doubling up the same.

++   Income-tax exemption limit raised by more than the rate of inflation with in one year.

++ Irritants like FBT, surcharge, Commodity transaction tax removed, complex SARALl to be amended

++ One rank one pension accepted for Army. ( Why not for others is the question as the same anomaly exist even for civil services)

++ Simplification of CENVAT rules, export refund rules and other procedural simplifications of GTA and other services

++ No tinkering with the reduced rate of tax on customs, excise and service tax fronts.

++   Goods manufactured on site irrespective of material has been exempted. ( Should benefit Infra cos.)

++   Central excise duty on branded jewellery ( which in any case only few like Titan were paying) has been removed.

++ Excise duty on copyright component of software has been removed. ( This being separately taxed under Service tax)

++ Excise duty on cars with motor engines of more than1999 cc capacity has been reduced by 5,000 Rs. ( obviously there was a long car lobby which could not be annoyed)

++ Duty on petrol driven goods vehicles has been considerably reduced from 20 % to 8%.

++ Non-relied upon document to be statutorily returned on completion of investigation i.e issuance of SCN ( with in 30 days).

++ Customs duty on raw corals reduced to Nil

++   Custom duty on waste of wool and cotton waste reduced by 5%

++   Sub-brokers out of the service tax net.

++   Exemption to FIEO and Councils from Service tax upto 31-3-2010 ( In other words, start shelling out the tax atleast after that date)

And the flip side - (which is always less talked about in the budget)

++ for a number of items in central excise rate has been quietly raised from 4% to 8%,. ( list is sure to create ripples in the days to come as it includes many items on common use like writing inks, PTA, DMT, Polyester chips, latex rubber thread and tape, MP3/MP4/MPEG players, mica, ceramic tiles in factories not using electricity, hollow building blocks, LPG gas soves, raw and tanned fur skins, plywood, fibre and other boards, flush doors and other articles of wood, contact lenses, playing cards, Paint brushes, (tooth brushes, shaving brushes_ Hygiene seems to be taking a back seat), folders file covers and other articles of business stationery, manmade filament yarn and fibres and on textiles of pure cotton from 0% to 4%, goods using more than 25% fly ash content will also attract duty of 8% instead of 4%.)

++ What should gladden the hearts of milk adulterators lobby, is that excise duty on electronic milk adulteration checking instruments has been increased from 4% to 8%. So, make your intestines strong enough to digest all the urea, animal bone powder, detergents, chemicals etc.

++ Import duty on gold and silver bullion, jewellery etc. doubled up form current levels (The logic of the PM in his earlier FM avatar that reduced duty on Gold reduces smuggling being reversed. Some job for DRI and Custom- preventive teams .)

++ Mouth fresheners being admixtures of betel nuts would be considered as manufactured product and taxed under Chapter 21.

++ Construction material for building or for erection of capital goods not entitled to CENVAT credit.

++ Customs duty on copyright portion of imported software exempted subject to conditions to avoid double taxation under service tax.

++ And for anyone whose heart has been broken by the budget announcements- custom duty on artificial heart has been reduced by 2.5%

++ Taking note of reducing snow levels and water shortage in the country, duty has been reduced on snow skis, water skis, surf boards, water sports equipment etc. fully and totally.( Only somehow manage to import your own water and snow)

++Inclusion of legal consultancy services under service tax, when these services are not provided to individuals. (May be taken in stride by the lawyers fraternity without a strike, as may only effect big corporate lawyers )

++ a surprisingly quite inclusion in the list of services has been inclusion of `transport of goods by rail` as transport service under Sectio0n 65 of Finance Act,1994.( Sure bound to be a good revenue earner for the Government-Mamta Banerjee may frown.)

What is still heartening about the budget is that it is revenue neutral on the direct taxes side and a moderate revenue of Rs. 2,000 crores is sought to be generated on indirect taxes side. Why is the stock market having the shocks is not understood then. After all, have we not as a Nation caused a colossal loss in terms of GDP to our beloved country listening to those meaningless and endless debates speculating about budget and then analyzing it to the core and in the whole process taking that stock market few points up and then down. Let us hope that we do not prove to be such big fools in next April. Till such time, read this one as your last analysis and have a break even if you cannot break the old habit of speculating about the budget. The FMs who provide the DREAM budgets also make the money come and go like a dream. It is always better to have a reality check away from dreams at times.

(The author is Advocate & C.C.O., Amicus Rarus Consults)