The suits, hunched around tables and listening to the finance minister's speech closely at the Confederation of Indian Industries (CII), remained subdued throughout. Only once did they cheer - when Jaitley announced that this government will stick to its fiscal deficit target of 3.5 percent of GDP for the coming fiscal. Their lukewarm response, even to the tax amnesty proposal Jaitley rushed through, is no surprise either.
Sindhu Bhattacharya Updated: Feb 29, 2016 18:06 IST
Generous allocations to farmers and the agriculture sector can only be possible when the government is able to raise more resources. In simple terms, this means the common citizen, the rich and corporate sector should be prepared to be taxed more so that the widespread farm distress India has been facing due to successive monsoon failures can be tackled. This is more or less the direction of the budget proposals finance minister Arun Jaitley read out this morning. India Inc waited for relief on the corporate tax front but was disappointed. And for the common man — you and I — additional cess on all services would be the immediate additional burden, coupled with the fact that the finance minister has not raised the limits on income tax.
It is no surprise really that Budget 2016-17 is an out-and-out farmers' delight since the prime minister's exhortations earlier this year on the subject were indicative enough. In his speech this morning, not only did Jaitley heed Modi's advice, but went a tad overboard with symbolisms, perhaps in a bid to come across as pro-poor in an election year. One number alone signifies the over enthusiasm the minister showed on this subject pretty clearly: 32. That is the number of times the word 'farmer' was used by Jaitley in his speech. Add the word agriculture to this list and one realises that the two words together were used almost 50 times. While on the one hand, farmers appear to be the real beneficiaries in the coming fiscal, the corporate sector seems to have taken a knock.
Neeru Arora, partner at Deloitte Sells and Haskins, said India Inc had wanted two levies - Dividend Distribution Tax (DDT) and Minimum Alternate Tax - to go but no such announcement was made by Jaitley today. Added to India Inc's woes is the fact that despite asserting headline corporate tax rate will reduce from 30 percent to 25 percent in four years, the finance minister again did not provide a timeline for reducing the headline rate and simultaneously taking away exemptions. In effect, there is little reduction in corporate taxation - at least when one takes a precursory look at the budget proposals. The fine print may yield details which could alter this perception though.
Yet another interesting observation from the minister this morning was the extreme caution with which he went about singling out the rich and heaping new taxes on them. This does not mean the middle class would be happy either, since a cess of 0.5 percent will additionally be levied on all services. For the rich, he raised the surcharge from 12 percent to 15 percent on individuals having income above Rs 1 crore. Also, he raised duties on "luxury cars" while also imposing another cess, infrastructure cess, on all passenger cars. Obviously, the large fuel guzzlers and the rich man's mode of transport - the higher engine capacity vehicles and SUVs - will be charged at the highest slab of 4 percent.
Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LL, noted that introduction of new cesses, on addition to those introduced in the previous year, "runs contrary to expectations and appears regressive. On the whole, there is an estimated net increase in tax revenue by almost Rs 20,000 crore. The sectors contributing to the incremental taxes and resultant impact on the economy as a whole will be keenly watched."
In the Economic Survey, which was presented on Friday, the government had made a scathing observation against the rich, saying Rs 1 lakh crore is additionally lost in subsidies to the rich, outside of the tax concessions to India Inc, each year. As of 2015-16, the estimated concessions and exemptions to the corporate sector in terms totals to about Rs 62,000 crore. The budget fine print may reveal more taxing proposals for the rich. In his speech, the finance minister also announced a mega amnesty scheme for tax payers in the form of a limited period compliance window. This involves paying tax at 30 percent and surcharge at 7.5 percent and penalty at 7.5 percent, which is a total of 45 percent of the undisclosed income. There will be no scrutiny or enquiry regarding income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution. This emphasis on taxing the rich must be read in reference to the famous Modi speech earlier this year where he mocked the term "exemptions” used to describe tax concessions to corporate houses while using the terms “subsidies” for concessions to the poor. The survey had noted that the Rs 1 lakh crore subsidy given to the rich comes from just these seven categories: small savings schemes, kerosene, railways, electricity, LPG, gold, and aviation turbine fuel (ATF).
Though he seemed to have disappointed India Inc, the FM has wisely staved off more criticism by announcing a massive increase in infrastructure spending, building more roads and hiking investment in railways etc.
What have the farmers been promised? The allocation for the agriculture ministry has been almost doubled from Rs 22,958 crore in the revised estimates of current fiscal to Rs 44,485 crore in 2016-17. The total allocation for agriculture and irrigation stands at Rs 54,212.33 crore against revised estimates of this year at Rs 25,988 crore. Spending on irrigation has been trebled to around Rs 17,000 crore, around Rs 5,500 crore has been earmarked for the crop insurance scheme, and Rs 19,000 crore for rural roads. In addition, close to Rs 87,000 crore has been allocated for rural development and around Rs 2.87 lakh crore has been proposed as grants for rural bodies in fiscal 2017.