Tax Proposals of the Union Budget 2013-14
The aim of Budget 2013-14 aptly addresses the need of the hour i.e., to accelerate growth through sustainable development and inclusive growth. The tax proposals are also in tandem with this overall aim of the budget, proposed to be achieved by focusing on key areas, such as bringing in stability in tax regime, ensuring a non-adversarial tax administration, curbing tax evasion and increasing voluntary compliance. Also, the budget reinforces its faith on the progressive system of taxation, by proposing levy of surcharge on the affluent, higher taxes on luxury & sin goods, provision of additional deductions to specified categories which do not encompass the rich (like additional interest on housing loans upto a specified limit, total income cap of Rs. 12 lakhs for new investors to avail the benefit of deduction of investment in Rajiv Gandhi Equity Savings Scheme), lower abatements for service tax in case of houses of high value.
The stability in tax regime is to be achieved by maintaining status quo with respect to basic exemption limit and income-tax slabs. The rates for all the three central indirect taxes, namely, excise duty, customs and service have also not been tinkered with. The proposals to continue the benefits relating to deduction for new investors investing in equity market as well as the lower rate of tax on dividend received from foreign companies and the proposal to make minimum addition in the negative list of services introduced last year are in line with this objective. Further, another notable feature in ensuring stability is that no major retrospective amendment has been proposed this year.
Significant thrust has been placed on “non-adversarial tax administration” by proposing to constitute a Tax Administration Reform Commission to review the application of tax policies and tax laws. This would facilitate our tax systems to adopt best global practices, which is a reflection of an emerging economy. The proposal to provide for MRP based valuation in respect of branded medicaments of non-allopathy systems of medicine, will bring more clarity in law and reduce disputes. However, non-rationalization of the complex and restrictive credit provisions is a major disappointment.
The re-introduction of tax deduction at source on sale of immovable property, where the consideration exceeds Rs.50 lakhs, is certainly the need of the hour to curb tax evasion by way of undervaluing or non-reporting of immovable property transactions. Introduction of additional income tax @ 20% of profits distributed by unlisted companies to shareholders through buyback of shares would prevent significant revenue leakage. Likewise, levy of higher rate of tax on royalty and fee for technical services to non-resident to prevent categorizing distribution of profits by a subsidiary to a foreign parent company as royalty is expected to plug the loophole and prevent escapement of income.
In order to ensure that the current defaulters of service tax comply with the requirement to file returns and pay taxes, a one-time scheme called “Voluntary Compliance Encouragement Scheme” is to be introduced. A defaulter availing the scheme would be absolved of the interest and penal consequences of non-payment of tax on time. This could prove to be a significant revenue garnering measure for the Government.
The proposed introduction of investment allowance @ 15% to a manufacturing company investing more than Rs.100 crore in plant and machinery during the period 1.4.2013 to 31.3.2015, exemption of Investor Protection Fund (set-up by a depository for the protection of interest of beneficial owners) from income-tax, extension of “eligible date” for projects in power sector for availing benefit under section 80-IA would certainly go a long way in giving a boost to economy by attracting more investments. Also, considering the low phase of readymade garment industry, the restoration of “zero-excise duty route” for cotton and man-made sector at the yarn, fabric and garment stages would provide the much needed relief.
The Finance Minister, as expected, has outlined the roadmap for ushering in the GST regime by specifically allocating a sum of Rs.9,000 crore towards the first installment of the balance of CST compensation. It is hoped that the consensus of the States would be obtained and the Constitutional Amendment Bill as well as the GST Bill would be introduced in the Monsoon session of the Parliament. The Finance Minister has also assured to bring in the Direct Taxes Code Bill back before the end of the Budget Session. It is hoped that the new DTC, giving due weightage to the recommendations of the Standing Committee, would ultimately incorporate the best global practices, and at the same time, maintain the right balance between simplicity and equity.
Union Budget: 2013-14-Proposal on Economics
Finance minister P Chidambaram presented one of the most highly anticipated Budget of recent years, as the government looks to rein in a bloated fiscal deficit and restore confidence in Asia’s third-largest economy. He stressed on development to be sustainable economically and ecologically. Sufficient allocation has been made to programmes relating to women and child. Health and education for all will be the priority for the government. India’s first Women’s Bank is a welcome step in the budget.
If India can build on its economic strength, it can be a source of stability for world economy and a safe destination for restless global capital. India’s GDP growth in 2012-13 is expected to be at 7.6 % +/- 0.25 %. Plan expenditure is placed at Rs 5, 55,322cr as proportion of total expenditure will be 33.3 %. Non Plan expenditure is estimated at Rs 1109975cr.
Concept of “Effective Revenue Deficit” and “Medium Term Expenditure Framework” statement are two important features of amendment to FRBM Act in the direction of expenditure reforms. The Endeavour is to keep central subsidies under 2 % of GDP in 2012-13. More sectors are being added as eligible sectors for Viability Gap Funding under the scheme “Support to PPP in infrastructure”.
India’s greater worry is the current account deficit – will need more than $75 billion this year and next year to fund deficit. Fiscal deficit currently is at 5.3% of GDP this year and is expected to be 4.8% of GDP in 2013-14. The revenue deficit for the year 2013-14 has been fixed at 3.3 %.
Fiscal consolidation cannot be affected only by cutting expenditure, therefore wherever possible, revenue also must be augmented.
Currently India is the 10th largest economy in the world. By 2017, it can be 8th or perhaps 7th largest economy. It can be among the top 5 by 2025 if the right policy framework and proper implementation is followed.