Like every other reform, the ones in a Union Budget are judged on their merits and failures by those most affected by it.
While individual tax payers at the middle level are happy with the reduction in slabs and surcharge, and in case of professional assessees, the raising of the income level for statutory audit, consumers in the same and higher income brackets have reacted negatively to the increase in the costs of cars, petrol and diesel. As in any subsidy, there is scepticism whether this withdrawal will ensure more benefits to a less privileged segment. A similar perception is shared by the automotive industry, recovering from recession with launches and further plans on the agenda. For corporate tax payers, the surcharge has been reduced, but the increase in MAT to 18 per cent has effectively nullified this, and is expected to impact the software industry, Infosys and TCS among others. Even otherwise, the software industry is unhappy, as the demands for migration from the STPI units with attendant benefits have not been seamlessly extended to the SEZs. The Pharma Industry is also reportedly dissatisfied with MAT, but the advantages in the increase in weighted deduction in R & D expenses, and deductions in healthcare expenditure should favourably tilt the balance.
Infrastructure and energy sections have been given attention with enhanced allocation. Infrastructure has been accorded impetus not only in in terms of out lay, but the benefit of deduction on investment in Infrastructure bonds. A Clean Energy Fund is also envisaged for funding research and innovative projects in clean energy technologies to combat climate change – this is of the opportunity for the energies for the future – renewable and nuclear power, to derive optimum benefits. Machinery and parts for solar power generation have been exempted from CVD with 5 per cent concession in customs duty. In sync with this approach, full exemption from basic and special customs duty is being extended to all parts including batteries and chargers for electrically driven vehicles. Electric energy continues to remain fully exempt from customs duty, except in cases of supply by a SEZ unit to its non-processing areas or DTAs.
Though the biggest revenue earner and a major health hazard, additional excise duties imposed on tobacco products no longer raise any murmurs or protests.
Health being wealth – customs duty and CVD on medical equipments, accessories and devices have been significantly lowered the exemptions ranging effectively from 5 per cent to 9.2 per cent. But given India’s future requirements in these sectors, the reforms should have been more progressive and aggressive.
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The other major indirect tax rates have been only marginally increased, excise by 2 per cent, while service tax remains at ten, as a part of the migration process to GST. But the net of service tax has been widened to include builders’ services in construction projects for sale, (re)defining “renting of immovable property” to be a taxable service, to undo the effects the Delhi High Court Judgements in this regard holding that renting of immovable property for commercial purpose if not entailing any value addition does not constitute service. A Division Bench subsequently stayed recoveries till disposal of the pending appeal by the Supreme Court. The battle between the Revenue and the Judiciary promises to be interesting.
From the M & A perspective – there is clarity in cases of migration by or transfer from a private or unlisted public company to a limited liability partnership, the accumulated loss and unabsorbed depreciation can be carried forward.
Also, such transfer or migration will not be subject to capital gains tax. This will give to fillip to LLP structures.
The top score goes to the revival of disinvestment – which is perhaps the stimulus the economy needs. However, the Budget Speech refers only to stock exchange listings and offloading of stakes. One expected a more robust agenda with strategic sales and distress debt turnarounds.
On the downside, both FDI and corporate governance have been sidelined. One has rested on the laurels of 2009, while the other a repeat of the proverbial rabbit being pulled out of the hat – the Companies Bill.
Kumkum Sen is a Partner at Rajinder Narain & Co., and can be reached at kumkumsen@rnclegal.com