FOREWORD
The fifth and the last budget of the UPA government in
its present stint was necessarily to be an exercise of reconciliation
between populism and growth. With election in ten States round the
corner and general elections not far away, the extent to which politics
will get over the economics was a matter of intense speculation.
2.
The task of balancing the two was on the one hand considerably made easy
by the buoyant revenues and, on the other, posed a challenge in view
of declining trend in overall economic growth, uncomfortable inflation
rate, disappointing growth of agricultural sector, falling exports
resulting from rupee appreciation, rising prices of crude oil with
possible deleterious effect on inflation as well as balance of payment
and adherence to commitments under the Fiscal Responsibility and Budget
Management Act. The promise of inclusive growth and improving the lot
of ‘aam admi’ on which the government came to power and which formed the
bedrock of common minimum programme had remained a distant dream calling
for substantially raised outlay on infrastructure and social sectors
besides adequate provisioning for additional burden as a result of Pay
Commission recommendation. The pathetic state of farmers in certain
regions and the unabated stream of suicides was a severe indictment of
indifference towards a burning issue. Integrated with global slagging
economy faced with sub-prime crisis there was need to bolster the
investor’s confidence to prevent exodus of capital from the Indian
market. Then there were compulsions of coalition politics which made it
imperative to tread with utmost caution in the matter of economic
policies which, given a free hand, would have formed the agenda for
reform for transit to double digit rate of growth.
3.
Consideration of how far the budget has addressed these issues and come
upto the aspirations of different sections of people and sectors of the
economy has necessarily to be in the context of the political and
economic scenario, capacities and compulsions. There is a thin line of
distinction between populism and economic necessity. Complete waiver of
loans of marginal and small farmer casting a burden of Rs.60,000 crore
on the exchequer, coming just before elections, may be taken as populist
or as indicative of administrations’ sensitivity to human sufferings,
depending upon how one perceives.
4.
In the Economic Survey of 2007, presented a day before the budget, the
Finance Minister outlined the agenda for economic reforms to drive the
economy to the double-digit rate of growth. The steps included allowing
49% FDI in Insurance Sector, 100% FDI in retail, disinvestment in profit
making and non-profit making public sector enterprises, privatisation of
loss making enterprises, coal mining privatisation, majority foreign
investment in rural banking and others. Strangely, such prescriptions
remained pious wishes, probably because of compulsions of coalition
politics. Absence of any significant measure for promotion of
infrastructure is also conspicuous which became the victim of
allocations to more popular areas.
5.
On the fiscal front, the budget has, insofar as it relates to direct
taxes, been quite responsive to the demands and aspirations in the
matter of personal taxation. The Finance Minister known for his bold
initiatives, has in a single stroke provided significant relief to
individuals by raising the exemption limits to Rs.1,50,000/-,
Rs.1,80,000/- and Rs.2,25,000/- for assesses in general, women tax
payers and senior citizens respectively which will result in a sizeable
number of persons going out of tax net and, coupled with slab
adjustments will reduce the tax burden of others in a significant way.
The belief that moderate rates of tax result in better realization has
been proved and there is every reason to believe that this further
moderation will lead to still higher tax revenue.
6.
Strangely, however, while there is ample generosity in matters of
personal taxation, there is very little rationalization in corporate tax
and tax on other business entities. Measures proposed for tax holiday
for setting up hospitals in rural hintier land, hotels in world heritage
sites, relief in Dividend Distribution Tax on dividend received from
subsidiaries and weighted deduction in respect of payment for research
and development, are no doubt welcome steps but with little impact on
the overall economic sentiments which needed to be boosted in time of
dark clouds hovering on the horizon due to global slowdown.
7.
In matters of service tax, the increased threshold limit of
Rs.10,00,000/- is a welcome step. However, inclusion of information
technology services within taxable services is likely to have serious
impact on the software and I.T.E.S. industry. It is also a matter of
satisfaction that the government, at last, saw the futility of Banking
Cash Transaction Tax introduced just for getting information when such
information could well be and is being gathered through other means.
Scrapping of the tax was a long felt need. The government could have
done better if the same was made effective from a date much earlier than
1st April 2009.
8.
One cannot ignore the counter productive measure introduced in relation
to the treatment of Securities Transaction Tax ( S.T.T ) in the
Computation of liability under the Income Tax Act. The system of rebate
of S.T.T. paid has given way to deduction in Computation of business
income. STT being a tax introduced in lieu of exemption in respect of
long-term gains and concessional rate on shot term gains is akin to
advance payment of tax which was rightly given credit of in computing
the tax liability under Income Tax Act. The amendment sought to be
introduced is likely to create substantially higher tax liability on
dealers. Coupled with increase of tax rate in respect of short-term
gains from 10% to 15%, the proposals may act as serious disincentives in
stock market.
9.
The Finance Bill fails to address the problem of heavy pendency still
existing in all the benches of Settlement commission of cases which,
under the new scheme, will have to be passed on to the assessing
officers for assessments under the normal provisions. The vesting of
power of granting immunity from penalty and prosecution in the
Commissioners of Income-Tax in cases which abate, is not likely to
relieve the assessee-applicants of the hardships. Settlement is
distinct from assessment both in the matter of procedures and approach
and is designed as a forum for resolving complications existing in
cases. The evidence-based assessment approach is not a proper
substitute for Settlement even with powers to grant immunity and causes
injustice when abatement is due to no fault on the part of the
applicants. An extension of the cut-off date would have been a
reasonable solution.
10.
In the area of indirect taxation, the Finance Minister while keeping the
rates of custom duties broadly unchanged has allowed relief to certain
sectors. Significant reduction has been proposed in the rates of excise
duties applicable to certain items. Further reduction of Central Sales
Tax rates and rationalisation of excise duties are preparatory to the
introduction of GST Scheme to come into effect from April 1, 2010.
11. In the total
view of the budget proposals, it appears that the Budget could not be
materially different from earlier budgets of any government presented in
similar political scenario. Politics appears to have prevailed over
economics. Following the similar populist railway budget, the trend
appears discernible. However, not minding the thrust of the budget
proposals, one can reasonably derive satisfaction in what has been
done. Given the constraints and compulsions the Finance Minister has
done a good job and deserves to be complimented.
12. It is a known
fact that perceptions differ from person to person and we hope that this
booklet will enable each one to draw his own conclusions of the Budget
2008.
February 29, 2008
Mumbai
Thanking you,
www.laws4india.com
manager@laws4india.com
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