New Delhi: The day after the Budget, when some of the dust is settling down, there is a lot of anger on social media against at least one proposal of the finance minister. Yes, the proposed tax on Employee Provident Fund (EPF) withdrawal. Well, some relief may be on its way. Economic Affairs Secretary Shaktikanta Das said on Tuesday that the Finance Minister has received representations against this new provision in the Budget and he will take a call, adding "obviously there is room for review". Das was speaking at the CNBC-TV18 Mint Budget verdict programme.
The event saw MoS Finance Jayant Sinha with the secretaries of Departments of Revenue, Economic Affairs and Disinvestment giving out several headlines during this interaction. Besides raising hopes on resolving the EPF mess, the panel also explained that an RBI circular, which has been issued at 5 pm this evening, has provisions which would allow an additional Rs 25,000 crore infusion into public sector banks' tier I capital. This is over and above the Rs 25,000 recapitalisation proposed in the Budget and means that the amount made available to ailing PSBs is doubled.
There were several other clarifications, some harsh explanations about new levies and some light hearted banter from the panel about provisions in the 2016-17 Budget which have worried the aam aadmi, corporate honchos and businesses alike. One basic theme seems to have pushed the finance minister's hand in administering so many bitter pills to Indians this time: the paucity of funds with the Centre, specially after it was forced to give more share of revenue to states. Pushed into a corner, he has resorted to cesses and new levies to raise resources.
Here are some important clarifications which came through today:
1) EPF: Revenue Secretary Hasmukh Adhia explained the rationale behind levying this new tax on EPF withdrawals thus: "Instead of people withdrawing complete corpus of their PF savings, we want them to buy annuity products to save. There is no question of taking away their flexibility, we just want to make this move towards a pension society. This is using taxation as an incentive to move towards a pension society. Anyone can withdraw the entire corpus after paying tax, where are we taking away flexibility?" To a question on why should everyone be forced to keep this corpus till retirement, where again the age has been advanced to 58 years, Adhia merely said 55 years was no age to retire from work. As of now, only 40 percent of the total corpus withdrawn at the time of retirement will be tax exempt. Das said over the years, this facility (no tax on EPF withdrawal ) was being used by people earning over Rs 15,000 a month.
2) Bank recpitalisation: The finance minister provided only Rs 25,000 crore for this in 2016-17 Budget when the market and industry experts had expected much more. But MoS Sinha said RBI has now allowed several provisions to banks and this single decision will infuse another Rs 25,000 crore into PSBs' tier I capital next fiscal.
He also said the government is committed to infusing more cash in banks if needed, outside of the Rs 25,000 crore committed in the Budget. The MoS also said that the idea of setting up a 'Bad Bank' had been junked after extensive consultations with IMF officials and other experts. Instead the Bank Board Bureau which is being set up will help in PSB consolidation. He also said various options are available when asked about FM's reference to bringing down some of the government's equity in the RBI to recapitalise PSBs. Sinha admitted that the plan to infuse a total of Rs 70,000 crore equity into PSBs while letting them raise another Rs 1.1 lakh crore from the market may not be all that sound, specially the latter bit.
3) Retro tax: The indomitable Rahul Bajaj wanted to know why the government was forcing Vodafone to pay the principal amount in the retro tax dispute (it has said interest and penalty will be waived) when the company had won a reprieve from the courts. Adhia acknowledged this but pointed out that though the NDA government has merely re-stated its position in the Budget on not having any retro taxes in the future, Vodafone would do well to avail of this window and clear out its dues.
4) Cesses: When being rebuked for imposing new cesses in the Budget, Adhia admitted that the Centre "is left with very little funds" after the Finance Commission mandated increased devolution to states. He said the new cess levies are a short term measure to raise funds to invest in necessities like education, infrastructure etc. They will anyway be subsumed into the Goods and Services Tax (GST) once it becomes applicable.
5) On GST, the unanimous view was that even if the Constitutional Amendment for bringing in GST gets the Parliament nod in the Budget session (which in itself is an optimistic view), GST should only be implemented from 1 April 2017. The panel said it takes 5-6 months after Parliament approval for the tax reform to become functional.
6) ATF: SpiceJet's Ajay Singh wanted to know why has the government raised excise duty on jet fuel to 14 percent from 8 percent, when already India taxes ATF the highest in the world. Specially when the stated objective of the Civil Aviation Policy has been to encourage flying and make it affordable. Adhia explained this away by comparing taxes on petrol, diesel with those on ATF. He said diesel costs Rs 45 a litre in Delhi of which Rs 20 is taxation so he did not see a reason to not tax ATF higher. But he clarified that ATF excise will stay at 8 percent for airports which are under the Regional Connectivity Plan of the Ministry of Civil Aviation.
7) Disinvestment: Niti Aayog will be coming out with a list of Central PSUs in which strategic sale of government's equity can be done within a fortnight. And norms for this strategic sale will be out within a month. The government has set itself a disinvestment target of Rs 56,000 crore for next fiscal of which Rs 25,000 crore are to raised via strategic sale in CPSEs.
8) Spectrum: The government has set a target of raising Rs 98,000 crore through spectrum proceeds, which many have found to be a stretched target. Das explained that of this, Rs 20,000 crore will come from license fees (which is a recurring payment by telcos). Another Rs 15-20,000 is expected from payments by telcos for spectrum arrears. Which leaves Rs 55,000 crore from a fresh sale of spectrum next fiscal - this seems achievable since the TRAI has estimated earnings of Rs 5 lakh crore from the fresh sale of spectrum of which 25% should accrue to the government in the first year, 2016-17.