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Budget 2016 sans big bang announcements but with a rural tilt

It was a workman like budget sans any big bang announcement but its undercurrent was palpable---puncturing the suit-boot jibe so successfully if serendipitously taken by Rahul Gandhi, the one that fluttered the dovecots of the Modi government. Jaitley had to do something to correct this image. He seems to have done this quietly without allowing the message to sink in but his party can later on go to town.

Arun Jaitley. AP

Arun Jaitley. AP

A small tax relief of Rs 3,000 having taxable income not exceeding Rs 5 lakh is nothing to write home about but slapping of a separate and independent tax of 10% on dividend income should it be in excess of Rs 10 lakh along with move to collect an additional surcharge of 3% from the super-rich----those earning more than Rs 1 crore, a motley but sparse crowd of 50,000---will go down well to disabuse the Modi government’s pro-rich image. The industrialists and commentators may cry foul----triple taxation of dividend, first corporate tax, then DDT and further 10% in the hands of recipients. But communists’ would be silenced. Their charge was the extant dividend tax regime favored the rich while unwittingly taxing the poor. Well the first has been righted but not the second----widows and pensioners not having any taxable income would continue to pay a vicarious tax in the form of DDT.

Jaitley seems to have perfected the art of not rocking the boat by hiking tax rates but by quietly focusing on surcharge and cesses. The budget is replete with new cesses with 1% cess on petrol-driven and 2.5% on diesel driven cars standing out. That 50% of the cess on cars is meant to be spent on agriculture sends out an image changing message----money collected from city-slickers is going to be spent on rural folks.

Indeed, the budget earmarks a whopping Rs 2.48 lakh crore for rural areas including farming and its subset organic farming, rural roads and subsidized LPG to rural households significantly in the names of women, a move that would warm the cockles of rural women more. The government seems determined to live down the pro-industrialists image by striving for doubling of rural income in a span of five years. Whether it would turn out to be another jumla in retrospect time alone will tell.

On the employment front, the budget has done precious little except something cosmetic. Section 80JJAA offers 190% tax benefit for salary paid to new hands. Hitherto, it was available only for the manufacturing sector. Budget 2016 opens it upto just anybody who is ready to get his accounts audited. But then hiring of additional hands has never been a function of income tax benefits, rather it is of demand. No industrialist would put up a fresh plant and recruit unless he foresees demand for his products.

All in all Jaitley seems to have reckoned that seventh pay commission would put more money in the hands of city dwellers but rural demand would perk up only if public investments were made in rural areas. But the billion dollar question is whether manufacturing would pick up merely on the back of greater domestic money circulation. Exports have been flagging and new capacities obviously cannot be created with an eye on foreign markets. In the event, the additional money infused in the economy could well result in inflation---too much money chasing too few goods.

Jaitley has also heeded the Easwar panel in so far its recommendation to extend presumptive taxation to professionals is concerned. But he has not gone overboard and confined it to those earning not more than Rs 50 lakh by way of annual fees as against Rs 1 crore suggested by the panel and deeming 50% as profit as opposed to 33.33%% as suggested by the panel. It is a matter of gratification for the author that he had suggested in these columns that 50% would be a more realistic profit margin for professionals.

Updated Date: Mar 01, 2016 12:35 PM

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