The 2015-2016 Budget has some of the Prime Minister’s signature marks, such as incentives for the youth and a focus on Make in India. But it’s also a harsh Budget that increases the tax burden and proposes a draconian law
The General Budget is a harsh on. It has some signatures of Prime Minister Narendra Modi — for example, measures for youth, senior citizens, the weaker sections and a focus on Make in India — but it also bears the stamp of former Prime Minister Manmohan Singh who was ousted by the people.The 2015-2016 Budget is more bureaucratic and inflationary, especially given that it was prepared at a time when there was scope for initiating greater reforms. Inflation has been coming down and the people were expecting a break from the UPA pattern.
For example, it was expected that agriculture would get special attention with the BJP’s stated vision of changing the economic dynamics of the sector. But this has not happened. It was also hoped that tax terror, which haunts all businesses and individuals, would be eliminated. Instead, we now a proposal to criminalise tax evasion even though it comes under the garb of anti-black money law. The proposed law criminalises non-payment of taxes with a 10-year jail term, making the offence a non-compoundable one and also denies defaulters the opportunity to approach the Settlement Commission.
Additionally, it gives draconian powers to the income-tax authorities, who are themselves not known for their honesty. The suggestion of checking savings from taxes deducted at source of bank deposits has also not been considered. Consequently, the savings of the poor continue to the robbed and financial institutions are burdened with additional costs. The opposition and the critics of the NDA Government have tried to paint this budget as one that panders to the corporates. It does not. The Budget promises to bring down corporate tax to 25 per cent in the next four years. This is welcome, as effective tax rates are at 23 per cent.
Critics ignore that they have also been saddled with 12 per cent surcharge that is to be realised from all — individuals, Hindu undivided families or firms —having an income of over one crore rupees. The little mercy shown to corporate is that they will have to pay at seven per cent upto Rs10 crore. Even foreign companies that are being lured to invest in India have not been spared. They will pay the surcharge at two per cent upto Rs10 crore income and beyond that at five per cent. Companies will also have to pay additional income tax of 12 per cent, instead of the present 10 per cent, for dividend payments and buy-back of shares.
The Budget increases the tax burden on all. Steep hike in road cess on petrol and diesel from two to eight rupees a litre for “allocation of additional resources for infrastructure” will make travel and transportation expensive. The Government could have balanced it with the abolition of the highway toll. The road cess has accumulated into a one lakh crore rupee fund.
Eating out and air travel are going to leave a bigger dent on the wallet as service tax is being raised from 12.36 per cent to 14 per cent, as part of the gradual transition towards the goods and services tax. The situation could get even more expensive if the proposed two per cent Swachch Bharat cess is also levied. The effective rate of service tax could be 16 per cent of the value of service, say some tax experts.
While that appears to be a bit much, there are new services that will face a levy, such as recognised sporting events, theatre performances, concerts and pageants where tickets cost over Rs500 per head. The Finance Minister has tried to rationalise the additions by stating that education and higher education cess is being subsumed in the service tax.
But that doesn’t change the far-reaching impact of the added tax burden. Even Government or local authority services to business entities will now invite service tax payments. Similarly, if a folk artist or a classical dancer charges a fee of over one lakh rupees, he or she will be subjected to service tax.The Central Excise Duty has also been increased from 12.36 per cent to 12.50 per cent in the name of rounding it off. This seemingly small amount will, however, cause significant increases in the prices of manufactured goods. Those flying business class will have to pay levy of 60 per cent of the value, instead of 40 percent.
The additional 30 per cent service tax will also make rail, road and vessel transport expensive, causing price rise for all commodities and goods. The government has also decided to levy service tax on chit fund services and those selling or marketing lotteries. At the same time, mutual fund agents and distributors have been brought in the tax net.
The Finance Minister should seriously re-consider abolition of the income tax to ensure people have more money to revitalise the economy. This step will radically improve business sentiment in the country and also add to real economic growth.