The Union Finance Minister has presented the budget for 2011-12 in the backdrop of growth of GDP @ 8.6% in 2010-11, contributed by a growth of 5.4% in agriculture, 8.1% in industry and 9.6% in services. The Minister shared that the economy has shown remarkable resilience to both external and domestic shocks.
Food inflation continues to be a cause for concern even though it has declined. The monetary policies of the RBI have succeeded in checking the inflation. The proposal to set up an independent Debt Management Office in the Finance Ministry is a welcome step.
The Government’s initiative to check black money through a five-fold strategy and the strengthening of the international tax administration is the need of the hour and should expectedly bring the unaccounted money stored abroad into the tax stream. CA.G.Ramaswamy, President, ICAI remarked that ICAI would like to play a proactive role in helping the Government to formulate the strategies and policies in this regard.
The Micro Finance Institutions are an important means of financial inclusion. The proposal to create an “India Microfinance Equity Fund” of Rs. 100 crore with SIDBI is a step in the right direction. Also, the proposal to create a “Women’s Self Help Group” with a corpus of Rs. 500 crores would definitely help in empowerment of women.
The Budget has given a boost to the infrastructure by making an allocation of over Rs.2, 14,000 crore to this sector, which amounts to 48.5% of Gross Budgetary Support to plan expenditure. Creation of Special Vehicles in the form of notified infrastructure debt funds (whose income would be exempt from tax) and reduction of withholding tax in respect of interest payments on the borrowings of these funds would provide further impetus to infrastructure development.
Time delays are plaguing infrastructure development and therefore, the proposal to allow the FIIs to invest in this sector will not only give the necessary finance but also improve project execution in this sector.
Due attention has also been given to strengthen the capital base of the banks by infusion of capital to the extent of Rs. 20,157 crores. The Budget also tries to address a crucial problem in the distribution of subsidies by introducing a scheme to credit the subsidies directly to the bank accounts of the concerned beneficiaries.
On the direct taxes front, no major conceptual changes have been proposed in view of the implementation of Direct Taxes Code with effect from 1.4.2012. However, levy of alternate minimum tax on LLPs in line with the Corporate MAT may serve as a cross purpose to the Government’s intention of facilitating the growth of LLPs.
Reduction in corporate surcharge by 2.5% would be partially offset by increase in MAT by 0.5%. Reduction to 15% offered to Indian companies receiving dividend from foreign subsidiaries is expected to increase the flow of dividends invested abroad into India.
The Finance Minister has taken the opportunity of rationalizing and reforming the indirect tax laws through this Budget. The movement to favour the tax compliant assessees as well as changes needed to implement GST by 2012 has been taken forward. The specific welcome measures in this direction are the rationalization of the rate of CED from 4% to 5%, which has already found favour among many States. The intention of broad basing taxation has been taken forward by levying 1% excise duty on 130 exempted items, which are mainly in the nature of consumer goods. Self-assessment in customs will pave way for reduction in transaction costs. In order to address the difficult problem of refunds, the service tax exporters would now be eligible for drawback rates.
The budget focuses on removal of procedural difficulties especially in the areas of CENVAT credit, valuation, penal provisions, relaxation of the provisions of audit to small service providers, removal of interface with tax authorities by giving impetus to e-filing, e-payment and refund and speeding up of refunds to SEZs.
However, the proposal to implement accrual accounting for services may require to be revisited, inspite of the fact that it is a movement in line with GST, due to the fact that services cannot be taken back whether payment is made or not and also the fact that many professionals recognize revenue only on cash basis, in view of the practical difficulties of realizing fees.