Dr. Sanjiv Agarwal
This week is important from the economic view point as the Government would unfold its economic performance and agenda in the form of economic survey, railway budget and Union Budget for next fiscal- something for which the entire nation and investors all over the world excitedly wait for.
In the back drop of mounting fiscal deficit which our Government has not been able to contain, consistent inflationary conditions and high cost high interest economy, slow economic growth and gloomy picture in near future, the Union Budget 2013-14 is being presented in Parliament on 28th of this month. While there are lot many issues which ought to be addressed (security, food, agriculture, education, infrastructure, investment etc), the effort would also be to make it a populist document in the wake of elections that the country has to face next year.
This year’s budget is expected to be different and wildly innovative, as our present Finance Minister is known for. He may toy up with idea of some new taxes such as tax on super rich or commodity transactions or even bring back estate duty in a different form. Of course, increasing tax revenue (which is below target so far) and tax- GDP ratio would also be an important concern.
The budget may bring cheers to certain sections of India Inc as some of the controversial retrospective amendments brought out last year may be withdrawn or diluted. We may have an indication of Direct Tax Code (DTC) as to what will it contain and when it is expected. Scouting for tax revenue, the budget could see some new taxes, the burden of which is mostly shared by high income group people. Presently about 60 percent of assessees are in over Rupees twenty lakh slab and our Finance Minister is seeking to target them with some additional tax burden. Will it work ? It may be retrogatory too. Taxes like inheritance tax (remember estate duty), some sort of additional surcharge or tax on highest income slab assessees , taxation of capital gains and commodity transactions (like securities transaction tax) could be on his platter. That is more so become Government needs more cash now to fund itself, to distribute freebies in the form of cash for subsidy and schemes like NAREGA etc. This is besides the fact that subsidies are being reduced on petroleum products, gas and other products meaning thereby that urban population and already tax paying class would be coughing out more cash to the Government for consumption of goods and services.
India is a high savings country and the budget may offer some more tax incentives for investment in corporate bonds, capital market and infrastructure projects so that their financing becomes independent and Government’s cash outgo is balanced. Even PSU disinvestment could be encouraged.
It is unlikely that tax structure or tax facilities will be changed much except some tinkering here and there. Our Government has now learnt and realized that service tax is a cash cow and they would use this cow to produce as much milk as possible for them. Service tax shall be the focus area in this budget and we should all be prepared to pay more on various services – both personal and commercial. An announcement on road map to goods and service tax (GST) is a must.
While we know that our Finance Minister is very intelligent as well as unpredictable, we should not hope too much from budget. We should hope for stable tax structure and reforms, better fiscal discipline and better economy for tomorrow. Government too would like to have a populist budget with general election in next 15 months’ time.