MARCH 4, 2010
Budget 2010 - The tale of Wish-List and Reality
By Steven L D' Souza
FORMER Additional Commissioner of Customs, Central Excise and Service tax, an a MBA from one of top ten business schools in India, presently working as Mumbai based corporate management consultant and tax advisor to leading corporates/ consultancy firms across India.)
Langston Hughes said it elegantly-Hold fast to dreams, for without them, life is but a bird with broken wings, which will never fly. I held fast to this dream, that sometimes a layman's wish list and suggestions do get accepted, that it is indeed possible not to lobby your cause, and yet get your viewpoint across, that it is still possible to rise and fly on the wings of a dream. Thank you. Dear Finance Minister, for fulfilling many wish list in my dream of a resurgent prosperous and equitable India. Mukesh Ambani, the richest Indian today, the CEO of India's biggest corporate ,despite having to pay more MAT, has described the budget as one of an intrinsic India, one of a resurgent INDIA, A country that dreams Big, that has shown resolve to come out of a global recession, and still dream and aspire of double digit growth, inclusive growth and prosperity, and for once, all of us-this anonymous ex-bureaucrat, the richest Indian in this globe, and you Sir, the most seasoned and experienced politician and statesman in this country today SHARE IN THIS DREAM OF A RESURGENT AND PROSPEROUS INDIA-. JAI HIND.
WISH LIST-EXPECTATIONS-BUDGET RESPONSE AND REALITY
1) . Wish list – Adequate Disinvestment of public sector units ,- “At prevailing market rates, this dual step of sale of shares15% public ownership / 5% stake offering in big ticket PSUs, should bring in Rs 35,000 to Rs 50,000 crores ,next fiscal”
Positive Response - Disinvestment target hiked to Rs.40,000 crore for the coming fiscal- Govt eyes, another Rs.35,000 crore from spectrum sale-approximately should net around Rs 70,000 crores this fiscal, in line with the 13 th finance commission target of a potential Rs3.86 lakh crores disinvestment over the next five years, taking into account valuation at prevailing market prices.
2) Wish list - Expediting the 3G spectrum auction process- in next fiscal year 2010-11 should a t least bring in roughly another Rs.35,000 crs to Rs.40,000 crs,
Positive Response even before budget -Department Of Telecommunications, New Delhi has vide Auction notice OF 3G and BWA Spectrum already started the process on 25 th February 2010, by formally giving advertisements for Notice Inviting Application .DoT and the Finance Ministry expect the auction to be complete in next 60 to 90 days.
3) Expectations - gradual hike in diesel, petrol prices -
Result- The Budget restored the basic customs duty of 5 per cent on crude petroleum; 7.5 per cent customs duty on diesel and petrol and 10 per cent customs duty on other refined products. Central Excise duty on petrol and diesel enhanced by Re.1 per litre each. . Given that The Kirit Parekh committee report, and the Government refusal to go for off the balance sheet oil bonds which throw fiscal calculations off gear, and no increase in administered prices prior to budget, the hike was expected by all. The opposition has staged a walkout during the budget speech on this issue, but frankly the chances of rollback are slim, without affecting fiscal deficit or developmental expenditure. The walkout appears to be more for political compulsions, not sound economic reasons .
4) Wishlist- Reduction in fertilizer subsidies -
Positive response just before budget –
A Nutrient Based Subsidy policy for the fertilizer sector has been approved by the
Government just a few days before the budget , and will become effective from April 1, 2010. No immediate financial benefits to listed companies from the recent Cabinet decision just before the budget to implement a nutrient-based subsidy regime for phosphatic and potassic fertilizers and peg up the MRPs of urea by 10 per cent. On urea, the price increase is small and it will go directly to trim the government's outgo on subsidy, as it is only the difference between the market price and the production cost which are reimbursed as subsidy to producers. In next fiscal, the burden of this subsidy should come down by atleast Rs. 10,000 crores. It is a good beginning to gradual phased reduction of subsidies
5) Wish list - Dual graded withdrawal of stimulus package- “increase Cenvat rate by 3% for sectors that have done well, and hike of only 1% for still recovering sectors.”
Response-partially accepted –The Finance Minister increased the cenvat rate across the board by 2% only , instead of the 4% stimulus relief granted earlier. No hike in service tax rate. The proposition of FM is good for the economy, it shows converge of a Central GST rate of 10%, as also indicates the seriousness of the government in ensuring that present policy decisions are in accordance to the proposed roadmap for implementing the GST in the next fiscal year.
6) Wish list – Increase tax burden on the Neo-rich- “The Wealth Tax rates on the Wealth of our umpteen neo-rich billionaires and millionaires need to be enhanced,”
Response-overwhelming –Wealth tax collections are less than Rs.500 crores today. The Finance Minister instead chose to increase MAT by 3%, on companies enjoying tax holidays, and whose CEOs are climbing up Forbes list, and buying yachts and aeroplanes as luxury toys., without any significant contribution to charity, unlike Bill Gates or Warren Buffett. A 3% hike in MAT is expected to impact tech firms' profitability, especially that of smaller companies. Minimum alternate Tax (MAT) is increased from existing 15 per cent to 18 per cent on book profits of those companies which do not pay tax because of various exemptions due to tax holidays . The increase in MAT will have a direct effect on infrastructure developers, telecom companies, IT providers and power utilities. Hike in MAT may impact margins of our corporate giants enjoying tax holidays like RIL, Bharti Airtel as well as some IT biggies like TCS, Infosys And Wipro. The FM in post Budget interviews says “ this will further promote inter-se equity among corporate taxpayers ‘
7) Wish list –Relief –Salaried and Middle Class –“ It is only fair that the super rich and the wealthy should contribute a part of their wealth earned from society, back to society .Why should only the salaried working class bear an inequitable, disproportionate and unfair tax burden if calculated on earning capacity basis?.”
The year's inflation, loss of jobs and loss of purchasing power has hit the common man very hard. Income Tax exemption limits for senior citizens, women and general assessees be increased across the board by at least Rs.30,000- Rs.40,000 per year, , keeping in view, that balance of equity with fiscal deficit concerns has to be addressed in this budget.
RESPONSE-SIMPLY MAGNIFICIENT .
The Finance Minister did not tinker with slabs, increase the exemption limit marginally as wished and expected, but in a remarkable gesture of relief to the salaried class and middle class, and giving relief to more than 60% of the income tax assessees, simply went across the board , giving more disposable income to the middle class. Take a Bow, the most senior statesman by experience In the UPA government today. In a post budget interview to the Economic times, The FM was asked-“ People who know you well say you are a workaholic? What drives you work so hard?.” The FM replied. “ You see, I am a village boy, very hard-working. I had to travel 6 kilometers every day to reach my school. There was no road to go to my school. The road was constructed only after I became a minister.” The FM with this single gesture, no doubt with the heart of a village boy, but the brain of an astute economist, has pulled out a rabbit from the bag. Personal tax liability goes down across the board. Those with annual taxable income of Rs.5 lakh will save Rs.20,600 a year. Tax savings for others in table below
INCOME TAX SAVING
Rs. 4 lakh Rs.10300
Rs.5 lakh Rs.20600
Rs.7 lakh Rs.41200
Rs.10lakh Rs.51500
8) Wish list - Extension interest subvention-exporters “ The 2% interest subsidy on bank credit to certain employment intensive exports sectors, valid till March 31, 2010 be further extended up to March 31, 2012.”
Response-Half the way -In a relief to certain export sectors worst-affected by the global financial crisis, the Government on Friday proposed to extend the two per cent interest subsidy on pre-shipment export credit for one more year till March 31, 2011. Extension of existing interest subvention of 2 per cent for one more year for exports covering handicrafts, carpets, handlooms and small and medium enterprises .
9) Wish list- Reliefs for Ailing Export Sector.
Response - In January 2010, the Central Board of Excise and Customs made a sincere effort to meet the long-standing demand of the service exporter community to rationalize the refund claim procedure. Now in the Budget, the Finance bill has proposed to amend the export of service rules whereby the conditions that the “services has been used outside India” has been removed. This would save a lot of time and effort that usually drains down in the litigation process. IT/BPO firms will get service tax refunds worth Rs.3,000 crore owing to the new simplified structure.
1 0) Wishlist- Reliefs-software, industrial parks, housing-“ The time limit for notification of industrial parks under New Industrial Park Scheme be extended up to March 2014 (Section 80-IA and 80 IB tax holiday benefits) from present deadline of March 2010 to boost to infrastructure and housing projects. Renewal energy projects be brought under the scheme,.. Software technology parks, , the STPI units, granted direct tax exemption on exports till March31, 2012 be granted a further extension of exemption for 2 years-i.e-till March 31, 2014
Response-Marginal.- * No proposal to extend the STPI tax holiday, which is set to expire by March next year, is a dampener for India's $50 – billion IT industry. Allow pending projects to be completed within a period of five years instead of
four years for claiming a deduction of their profits, as a one time interim relief to
the housing and real estate sector. Norms for built-up area of shops and other
commercial establishments in housing projects to be relaxed to enable basic facilities
for their residents.
11)Wish List -Food/Agro Processing
“ About Rs. 60,000 crores of fruits and vegetable rot away, only about 1.5 to 2 % of it is processed. To create more employment and give a fill up to the rural economy, the government must announce incentives / subsidy etc. to promote the food processing industry especially considering that high local and state levies have virtually destroyed this industry.”
Response-Outstanding
a) Project imports status is being granted to the initial setting up or substantial expansion of, a cold storage, cold room (including farm pre-coolers) for preservation or storage or an industrial unit for processing of agricultural, apiary, horticultural, dairy, poultry, aquatic & marine produce and meat. These projects would attract concessional rate of basic customs duty of 5%.
b) Project imports status is being granted to installation of Mechanized Handling Systems & Pallet Racking Systems, in mandis or warehouses for food grains and sugar, with concessional rate of basic customs duty of 5%. Such systems are also being exempted from additional duty of customs (CVD) and special additional duty of customs.
c) Truck Refrigeration units for the manufacture of refrigerated vans/trucks are being fully exempted from basic customs duty. Such units are already exempt from excise duty.
d Basic customs duty is being reduced from 7.5% to 5% on specified agricultural machinery such as paddy transplanter, laser land leveler, cotton picker, reaper-cum-binder, straw or fodder balers, sugarcane harvesters, track used for manufacture of track-type combine harvester etc.
d) Full exemption from excise duty presently available to 20 specified equipments for preservation, storage or transport of agricultural produce is being extended to apiary, horticultural, dairy, poultry, aquatic & marine produce and meat as well as processing thereof.
e) Full exemption from excise duty is being extended to self-loading/self-unloading trailers & semi trailers for Agricultural Purposes (tariff item 8716 20 00).
12) Wish list – Food Security. “ Revamp The existing PDS system has failed, provide foodgrains (25kg) at subsidized prices to the poor, including the homeless, and other essential commodities to BPL families. fulfil its promise of introducing The Food Security Act at the earliest.”
Response- Just an announcement-disappointing.
Food inflation has come down from 19 per cent on February 13 to 17.58 per cent
The Finance Minister has in post budget interviews state that the Govt. tried to bridge the gap by importing but international prices are very high. Private traders, despite being on OGL (open general licence), are not interested in importing commodities such as sugar, oil and pulses. The Economic Survey suggestions that The Govt. must go for direct imports and also hedge against shortages by going in for FOOD Futures in international commodity markets must now be seriously considered, The Food minister, as directed by the EGoM headed By the FM, must put the draft legislation soon for public review. More than half the 8 cr ration cards are reported bogus. So also many cards antodaya scheme are of non existent benefeciaries. The planning Commission has asked the Tendulkar committee just yesterday to review its BPL (below Poverty Line) criteria. The UPA Govt. must keep up its pre election promise of bringing in the food security act. The govt. must also heed the Eco-survey recommendation of encouraging private sector investment, a very small beginning made this budget, if we are achieve 4% growth in Farm sector.
13) Wish list-UID project. “ Last year Rs120 crs was allocated for the UID project. We expect at least another Rs 600 crs to be allocated for this nation wide important identification project this year”
Response-Excellent-Visionary. In the first significant allocation for roll out of the unique identity number, Finance Minister Pranab Mukherjee has earmarked Rs.1,900 crores for the Nandan Nilekani – headed Unique Identification Authority of India (UIAI). target of providing 600 million unique IDs in the next five years and ramping up numbers beyond this level. It is in this context that the authority plans to provide incentive to registration, by opening bank account. This would make more people come forward to register themselves. Officials said the strong authentication of the unique number would eliminate duplication under various schemes and save the government Rs.20,000 crores every year.
14) Wish list –Renewable Energy. “ help revive the ailing solar PVC industry, presently all closed or sick, due to cheaper cost disadvantage up to 50% of Chinese PVCs. Similar repurchase facilities be incorporated for all renewal energy schemes, and cross subsidization with other power fed into the national grid be made applicable, especially for wind power projects.”
Response-Excellent-Visionary.
A concessional rate of basic customs duty of 5% is being provided to machinery items, instruments, appliances required for initial setting up of solar power generation projects or facilities. These items have been exempted from CVD also by way of excise duty exemption provided to them. Full exemption from excise duty is being provided to additional specified raw materials for the manufacture of rotor blades for wind operated electricity generators. The green energy Fund increased allocation and the cess being levied on coal is a sign of the seriousness imparted to green/renewable energy sources. We may see many MNcs setting up plant to make wind power machinery/ solar equipment plants in the country. Just recently, The Spanish wind power equipment major Gamesa, set up windmill assembly plant in Chennai costing Rs 230 crores,, which could produce machines of a total capacity of 500 MW a year. It further intends spending €100 Rs640 crores more in developing wind farms in India. The company would develop the wind farms and sell them, rather than operating these.
15) Wishlist –Income tax tax deductions.- The section 80 C limit be hiked to Rs.1.5 lakh from Rs. 1 lakh for permissible tax deductions.
Response-midway relief -Deduction of an additional amount of Rs. 20,000 allowed, over and above the existing limit of Rs.1 lakh on tax savings, for investment in long-term infrastructure bonds as notified by the Central Government Tax-exempt saving limit goes up to Rs.1.2 lakh from Rs. 1 lakh through additional Rs.20,000 for infrastructure bonds.
16) Wishlist- DTAA-anti avoidance measures. Anti avoidance measures to prevent misuse of DTAA (Double Tax Avoidance Agreement) on lines of the Chinese model in any case, the DTC (Direct Tax Code) to be introduced in April 2011 has similar provisions, and there is no harm of this provision being made effective from 1 st April 2010 itself by announcing this measure in this budget.
Response - just a small beginning . The Finance Minister in his Budget Speech announced that Bi-lateral discussions have commenced to enhance the exchange of bank related and other information to effectively track tax evasion and identify undisclosed assets of resident Indians lying abroad. The impact of Section 206AA of the income tax act , mandating PAN number for All NRIs, failing which withholding tax of 20% would apply is overriding international treaty norms, and is a clear sign that in next year's Direct Tax Code, similar anti avoidance and anti-money laundering measures are in store.
17) Wish list-clarification-income of NRIs /MNCs-“ there is lot of ambiguity whether income tax is leviable on transaction done overseas, but “source of income” is in India. The Budget should settle this ambiguity in case of NRIs and MNCs.”
Response-ambiguity settled-devastating effect - As per modification to Explanation to section 9 of the income tax act, the situs of utilization of services will determine its taxability-i.e. place where service provided, not where the NRI or MNC is located. Non-residents who render services outside the country will have to pay tax on their fees in India if these services are used here. The measure comes with retrospective effect from 1976-77. It will impact many foreign companies and NRIs. High net worth individuals can no longer escape tax net by becoming NRIs.. It will also adversely impact many foreign companies
18) Wish list -desalination plant grant for Mumbai. Budgetary allocation for desalination plant near Chennai was made few years back by Mr.P.Chidambaram. Asimilar allocation of central grant for desalination plant near Mumbai, the biggest tax paying city of the country be made, since the financial hub of the country presently reeling under acute water shortage.
Response -Non existent- dear sir, the budget is a symbol of tokenism, both political and economic. For a city that gives the country 1/3 rd of its revenue, not even a token gesture has emanated. However as the Prime minister says, it is not possible to please everybody in a budget. Maybe in the near future, the mumbaikar's transportation, water and basic civic needs will be better attended to.
19) Wishlist - relief-ulips- life insurance sector
“ Service Tax levy on fund management services be exempted for the ailing life insurance sector, to give it a level playing field with the mutual fund asset management companies and funds managed by the banking sectors”
Response - fully accepted - The Budget proposal to limit the service tax only to fund management charges in ULIPs has removed the anomaly of not having a level playing field for various financial products. Anyone buying a Unit- Linked Insurance Plan (Ulips) in the first year of the policy will save Rs.200-500 on a premium of rs.10,000, with finance minister removing premium allocation and policy administration charges. levy of service tax only on the fund management charges levied in a Ulip instead of levying service tax on the entire ran ge of charges, to bring parity with the mutual fund industry.
20) Wish list - e-filing extension of service tax returns
“ CBEC chairman that announced few months back that e filing of service tax returns will be made mandatory. The process be streamlined and expanded all over the country since lesser interface with tax authorities and e governance will reduce scope for complaints and corruption .”
Response- total acceptance-CBEC-much before Budget.-
NOTIFICATION NO- 01/2010–ST., Dated: February 19, 2010-
1) These rules may be called the Service Tax (Amendment) Rules, 2010.
(2) They shall come into force on the 1st day of April, 2010.
“Provided that where an assessee has paid a total service tax of rupees ten lakh or more including the amount paid by utilisation of CENVAT credit, in the preceding financial year, he shall file the return electronically”.
This notification issued after my wish list and prior to the budget completes the process of automated returns in IT, central excise and service tax. The Commerce Secretary Shri Rahul Khullar recently said that If the Customs-DGFT-port EDI system is streamlined, it will considerably reduce transportation costs for exporters in the country. It is hoped that with the pace of e-governance measures, this wish of the commerce secretary will be realized soon.