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Tuesday 7 February 2012

Pranab All Set to Appease the Disconnected to Accomplish the Reforms agenda!tough Budget ahead!Industry demands growth boosters!

Pranab All Set to Appease the Disconnected to Accomplish the Reforms agenda!tough Budget ahead!Industry demands growth boosters!

Budget 2012 likely to increase income tax exemption limit to Rs 2 lakh
Govt may lower STT in Budget to boost markets

Finance Minister Pranab Mukherjeetoday said the government would extend a helping hand to the corporate sector to fulfil the ambition of attaining high GDP and an inclusive growth.

Troubled Galaxy Destroyed Dreams, chapter 740

Palash Biswas

Finance Minister Pranab Mukherjeetoday said the government would extend a helping hand to the corporate sector to fulfil the ambition of attaining high GDP and an inclusive growth.

Pranab Mukherjee is All Set to Appease the Disconnected to Accomplish the Reforms agenda!The logic of the electoral cycle points unambiguously to a tough budget with stiff taxes, curbs on populist spending, and an emphasis on controlling a runaway fiscal deficit. Despite the UPA government reeling under the shadow of a 'policy paralysis" , Union Finance Minister Pranab Mukherjee affirmed that at the end of this fiscal the GDP growth would hover around 7 percent.

"At the first two quarters of this fiscal year the growth was 7.3 percent and at the end of this fiscal year it would be around 7 percent or little less than it," he said at the inaugural session of India Corporate and Investor Meet on Monday in Kolkata.

He accepted the slow growth of the country due to various factors and said, "We have slow growth but it doesn't mean that we have to start eating lizard."

To achieve the projected growth of the nation, he craved for the growth in the domestic investment.

He said, "We require investment for higher growth through FDI, FII and other sources but domestic investment is more important."

This Budget session the Company Bill will be tabled in Parliament, he said, adding : "The New Company Bill will provide impetus to corporate governance."

Expressing his view on the role of corporates in the growth and betterment of soceity, he said that to achieve the ambition of higher growth and inclusive society, corporates are going to play a vital role.

"The new Companies Bill has brought new changes in tune with the state of the economy at this point of time. The government is willing and ready to extend helping hand to the corporate sector because the corporate sector has a major role to play in meeting our ambition of high GDP and inclusive growth," Mukherjee said at the FICCI seminar.

Calling for mopping up of more resources from the equity market,Mukherjee said, "One point which should be stressed is to enhance confidence of retail investors in equity and corporate governance. We will have to inject confidence into the minds of investors that their investments are safe."

He said that given the current savings rate of the economy at 33% and assuming that the entire domestic household savings did not leave investable surplus in the hands of the savers, then the percentage of investment in equity was not proportionate but more.

"If we can have that, then more resources can be mobilised from the domestic market," he said.

Union Finance Minister PranabMukherjee on Sunday said the central government had taken up a lot of welfare projects, but many people remained unaware of them and their benefits.

Citing the MGNREGA programme as an instance, he said over last few years, the Centre had undertaken a number of projects like it.

"Over the last few years we have taken up a number of projects likeMGNREGA. But many common men are yet to know about its benefits. A lot of people remain unaware," he said here at a programme in Murshidabad district.
He said he wants to set up a sports academy in Murshidabad district.

Worried over the impact of global financial turmoil on the economy, India Inc on Friday asked the Finance Ministry to retain tax rates at existing levels, but increase exemption limits to promote growth.

In their customary pre-Budget meeting with Finance Minister Pranab Mukherjee, industry leaders also demanded that healthcare services should be kept outside the ambit of service tax and minimum alternate tax (MAT) be rationalised.

Besides, they also made a case for giving infrastructure status to aviation, telecom, healthcare and education sectors, quick implementation of Goods and Services Tax (GST) and continuation of interest rate subvention scheme for exporters till March 31, 2013.

The meeting was attended by ITC Ltd Chairman Y C Deveshwar and HUL MD and CEO Nitin Paranjpe and representatives of industry chambers.

The big guns of India Inc skipped the pre-Budget interaction with finance minister Pranab Mukherjee on Friday, even as other industry representatives suggested boosting economic activities, which have been hit hard by external headwinds and the Reserve Bank of India (RBI)'s tight monetary stance for most part of this financial year.

Sources privy to the development said though invitations were sent to Tata Sons chairman Ratan Tata, Reliance Industries chairman and managing director Mukesh Ambani, Reliance Anil Dhirubhai Ambani Group chairman Anil Ambani and Aditya Birla Group chairman Kumar Mangalam Birla, they did not turn up.

Those who are in job, well employed may feel secure as they are Disconnected from the roots, the Society. But the Mulnivasi Bahujan Majority population amounting eighty percent Bahujan and total Ninety Nine Percent outside the affluent Ruling Class would be deprived of their valid share in Budget allocations. The OBC accounting for at least Fifty Two percent, would not be able to get whatsoever share as they are not counted. Parliamentary Consensus is violated by the Extra constitutional Corporate elements, the real Rulers of India, the LPG Mafia.

It is good to know that the First ever national convention of Bharat Mukti Morch would be held in New Delhi in March just after the Budget presented in the Parlaiament. incidentally, the first session is devoted to Budget! It would be a rare opportunity to mobilise the Mulnivasi Bahujan Masses aignst the Deprivement justified by POONA Pact.


1st National Convention
Date: 10th March to 12th March 2012

Place: Ramlila Maidan, New Delhi.

>>>> Handbill <<<<<
Schedule for the Budget session of Parliament will be decided tomorrow amid indications that the Union Budget 2012-13 may be presented around the middle of March.

Meeting of the Cabinet Committee on Parliamentary Affairs (CCPA) headed by Finance Minister PranabMukherjee is being held tomorrow to decide the schedule of the session which is generally a three-month affair.

Talk in political circles is that the address of President Pratibha Patil to the joint sitting of both Houses could be on March 12 heralding the start of the session.

The Budget session, which generally starts in the third week of February, has been delayed this time due to the ongoing assembly elections in five states including Uttar Pradesh. The model code of conduct is in force till March 9 when the election process would be completed.

There is speculation that presentation of the Budget could take place on March 16 and it is expected to be preceded by presentation of the Economic Survey and the Railway Budget.

The finance minister has already said that there is a Constitutional sanctity to two dates -- one is March 31 before which a vote on account should be taken so that there is no problem of withdrawal of money in the new financial year and the 75 days' deadline after presentation of taxation proposals to pass the finance bill.

Busines standard reports:
Bharti Enterprises chairman and group chief executive Sunil Bharti Mittal, Larsen & Toubro chairman and managing director A M Naik, Raymond group chairman and managing director Gautam Singhania, Biocon Ltd chairman and managing director Kiran Mazumdar Shaw, Asian Paints' Ashwin Dani, Mahindra & Mahindra Group's Keshav and Anand Mahindra and Essar Steel Holdings' J Mehra were also invited. However, they, too, did not attend the meeting.
Industry chamber and associations representatives, ITC chairman Y C Deveshwar, Hindustan Uniliver chief executive Nitin Pranjpe, Suzlon Energy chairman and managing director Tulsi R Tanti, BHEL chairman and managing director B P Rao and Medanta chairman Naresh Trehan met the finance Minister and suggested ways to boost the economy's sagging growth.
They asked the finance ministry to retain the current tax rates. However, exemption limits should be increased in the Budget to promote growth, they said. They also demanded healthcare services be kept outside the ambit of service tax and that the minimum alternate tax (MAT) be rationalised.
Mukherjee said the government and the industry had to collectively address the challenges, which declining growth, inflation, and fiscal and revenue deficits.
The representatives also made a case for giving infrastructure status to aviation, telecom, healthcare and education sectors, early implementation of the Goods and Services Tax (GST), and continuation of the interest rate subvention scheme for exporters till March 31, 2013.
"We asked for infrastructure status for the healthcare and education sectors. We also sought speeding of PSU (public sector unit) disinvestment, widening the tax net and implementing the GST as fast as possible," said Confederation of Indian Industry president B Muthuraman.
Pitching for widening of personal income tax slabs, R V Kanoria, president, Federation of Indian Chambers of Commerce and Industry, said a 30 per cent tax slab should be applicable to individuals with an annual income of more than Rs 10 lakh. The Direct Taxes Code Bill, being vetted by the Parliament standing committee on finance, seeks to impose the highest income tax rate on annual income of over Rs 10 lakh. "We have made a case for retaining the tax rates at the present levels. There should be no increase in corporate tax, service tax and excise duty," Kanoria said.
However, Rajkumar Dhoot, president, Associated Chambers of Commerce and Industry of India, said he had sought reducing the corporate tax rate by two-three percentage points and excise duty by one-two percentage points from their current levels.
Kanoria said the existing rate of MAT, introduced to bring zero tax-paying profitable companies into the net, should not exceed 50 per cent of the basic corporate tax rate.
Trehan, who was upset when Budget 2011-12 had imposed service tax on hospitals and diagnostic centres, said this tax should not be restored, even if the GST came into effect. Ridiculed as 'misery tax', this tax proposal was later withdrawn.

The government is likely to provide some relief to individual income tax payers in the forthcoming Budget by raising the exemption limit to Rs 2 lakh, as provided in theDirect Taxes Code (DTC), and hiking the slabs for different tax brackets. Finance minister Pranab Mukherjee will be unveiling the Budget proposals for 2012-13 sometime around mid-March. The industry too is demanding that in view of high inflation, the income tax slab should be increased although the government may retain the existing tax rates.

The next general election is due in May 2014. Hence there will be no full budget in February 2014, just a vote on account. So, the last budget in which to announce election goodies and giveaways will be in 2013. This in turn means that budget 2012 is the Finance Mister's last chance to set his financial house in order before the next election. That should concentrate his mind wonderfully. Economic Times says.

The Economic Times reports that The fiscal deficit has spiralled completely out of control this year. In April-December, it reached 92% of the budgeted sum, against just 64% at the same stage last year. Receipts of corporate tax and excise duty have grown by only 6% and 8% respectively against the budgeted 21.5% and 19.2% respectively. Disinvestment has been hobbled by a weak market and political paralysis. Explicit subsidies should be Rs 100,000 crore above budget, mainly because of fertiliser and petroleum under-recoveries. So, the fiscal deficit may be close to 6% of GDP, against the proposed 4.6% this year and 4.1% next year.

What are the key measures Pranab Mukherjee should take to increase revenue and cut spending? Here is a wish list.

Increase excise duty and service tax from 10% to 12%, laying the ground for a GST at 12% next year. Expand the service tax net by announcing just a short negative list of items free from service tax. Increase the tax on beedis to at least half the rate on cigarettes. This will be improve both human heath and fiscal health. Increase the import duty on crude oil from zero to 5%.

The possibility of lowering the tax rates, however, is remote in view of the fiscal constraints being faced by the government, sources said, adding that the government will take on board some of the key recommendations of the DTC.

DTC, which is currently being scrutinised by the Parliamentary Standing Committee, has suggested that the income tax exemption limit be hiked to Rs 2 lakh from Rs 1.8 lakh at present. It also proposes that the highest personal income tax rate of 30% should apply to annual income above Rs 10 lakh, as against Rs 8 lakh.

CII director general Chandrajit Banerjee suggested that basic exemption limit should be increased from Rs 1.8 lakh to Rs 2.5 lakh for individuals. "We have suggested that the income in the range of Rs 2.5 lakh to Rs 6 lakh should be taxed at the rate of 10 per cent, whereas that in the next slab up to Rs 10 lakh can be taxed at the rate of 20 per cent. Above Rs 10 lakh, it should be taxed at 30 per cent," Banerjee said.

Ficci secretary general Rajiv Kumar said the government should incentivise people to come into tax bracket.

"Given the revenue constraints, the income tax rates for individuals may not be reduced. It is, however, imperative that the peak rate of 30% for such assesses be made applicable over an income of Rs 10 lakh, against Rs 8 lakh at present," Kumar said.

Assocham president Dilip Modi said the Budget should provide basic exemption limit of Rs 2 lakh and the tax rate of 10 per cent should apply to persons having income above Rs 2 lakh and up to Rs 5 lakh. Calling for raising the tax exemption limit, PHD chamber secretary general Sushmita Shekhar argued that it is necessary to increase disposable income and boost demand in the economy.

"India is a consumption led economy. Role of private sector consumption in boosting the overall economic growth is immense," she said.

The ET suggest the Finance Minister:
Decontrol diesel oil prices. If this is politically impossible, levy a tax of Rs one lakh on every diesel car. Abolish the kerosene subsidy and instead offer free solar lanterns to all folk currently using kerosene lamps. This will not only reduce government spending but also end adulteration of diesel with kerosene, which is highly polluting and ruins diesel engines. Increase the import duty on gold and silver modestly. This will not only fetch revenue but check the runaway growth in imports of bullion, which have become the third largest import item. Do not increase the duty so much that smuggling of bullion becomes remunerative.

Make policy announcements that will enthuse investors. For instance, announce a new scheme for expanding private bank licences, and perhaps foreign bank licences too. Second, announce acceptance of Ajit Singh's proposal to allow 49% foreign equity in civil aviation by foreign airlines. Third, announce a shale gas policy that will facilitate a new round of bidding for shale gas deposits. Extend the nutrient-based subsidy for fertilisers to urea-currently this applies only to phosphatic and potassic fertilisers. This will not only check the rising fertiliser subsidy but kickstart fresh investment in urea production-a reported Rs 30,000 crore is waiting to be invested as soon as this reform is announced.

For the Food Security Act, index the proposed sale price to inflation. Announce pilot projects to test the Act and eliminate glitches that appear in implementation. Delay full implementation till 2013 to conserve funds and add punch to what will be an election budget. Declare that all these measures will bring the fiscal deficit back to the old target of 4.1%, more than meeting the RBI's demand for fiscal consolidation before cutting interest rates. Then sit back and bask in massive cheers for a superb budget.

Reeling under the impact of global slowdown and a high interest rate regime, India Inc on Monday demanded that tax rates be retained at existing levels even as finance minister Pranab Mukherjee expressed concerns about challenges facing the economy.

In their customary pre-Budget meeting with Mukherjee, industry leaders also demanded that healthcare services be kept outside service tax ambit, and privatise coal mines.

"There are various challenges before us, including keeping inflation and fiscal and revenue deficit to manageable levels... which we all have to address collectively," Mukherjee said in his address to the industry leaders.

At the meeting, business leaders suggested that service tax base may be widened with a negative list, besides exempting infrastructure companies and SEZ units from MAT.

"We have made a case for retaining tax rates at the present level. There should be no increase in corporate tax, service tax and excise," Ficci president R V Kanoria said in the Budget expectation.
Mukherjee is likely to unveil the Budget proposals for 2012-13 mid-March in Lok Sabha.

He also made a case for privatisation of coal mines, stimulating demand through fiscal measures and revisiting the concept of dividend distribution tax (DDT).
CII National Committee on Healthcare chairman Naresh Trehan sought infrastructure status for the healthcare sector as that would encourage companies in setting up hospitals in smallers cities and towns.

Besides finance and commerce ministry officials, the meeting was attended by ITC Ltd chairman Y C Deveshwar, HUL MD and CEO Nitin Paranjpe, Suzlon Energy founder Tulsi Tanti and representatives of industry chambers.

The industry leaders also sought infrastructure status for aviation, telecom and education sectors, and continuation of interest rate subvention scheme for exporters till 31 March, 2013.
In order to improve healthcare, the industry suggested that a benefit of tax deduction of Rs. 10,000 be given to citizens for preventive health check-up.

Industry representatives were in favour of a reduction in interest rates by 50 basis points to stimulate investment sentiment and stimulate demand.

They also demanded that exports be included in priority sector lending by banks and duty on readymade garments be either reduced or withdrawn.

Company bosses also sought clarity on the timeline for introduction of Goods and Services Tax (GST), besides rationalisation of MAT — a levy that was introduced to bring zero-tax paying companies into the net. At present, companies pay MAT at 18.5%.

They also suggested implementation of the Direct Taxes Code (DTC) in its entirety to help arrest cases of tax evasion.

FIEO president M Rafeeq Ahmed said, "Interest rate for the MSME sector should be capped at seven per cent and others at nine per cent and subvention should be provided to all sectors of exports at least till March 2013."

FIEO also sought complete exemption of excise duty on handmade carpets, reduction of excise duty on man-made fibres to four per cent (from current 10 per cent), and exemption of service tax on currency conversion for exports.

Union finance minister Pranab Mukherjee said on Monday headline inflation would continue around seven percent till March.

"I am happy that headline inflation has come down from perilously close to the double digit figure from 9.7 percent to 7.47 in the month of December (2011). And I would believe that it would continue till March," Mukherjee said at a FICCI programme in Kolkata.

"We need not to be disappointed over the growth performance of our economy. In the first two quarters (of the current fiscal) it was 7.3 percent...," he added.

On the country's GDP growth rate, he said it would be at seven percent by the end of the current fiscal March 31.

Text of the Speech of Union Finance Minister Shri Pranab Mukherjee at the India Corporate and Investor Meet
           Following is the text of the Speech of Union Finance Minister Shri Pranab Mukherjee at the India Corporate and Investor Meet in Kolkata today:-
           "I am very happy to be here today at the India Corporate and Investor Meet organized under the aegis of the Ministry of Corporate affairs headed by my colleague Dr. M Veerappa Moily.
           In the past, the Ministry has been organizing every year an India Corporate Week on several matters of topical interest. The Ministry has also been separately organizing "India Investor Meets" at various important cities to reach out to the investors and to educate them for greater corporate growth and national prosperity. This year these two events are being merged into this event. This is a good move and I endorse it. This would help consolidate the synergies in the objectives of the two events. Corporates and investors are strongly interlinked, interdependent and often even indistinguishable. From the perspective of national economy and its development, they cannot but have the same objectives, though in the short run, their interest could differ and sometimes even be in conflict. Since both form a very important part of the society which has a multitude of needs and compulsions, it is only appropriate that these two sit together in our ongoing drive for sustained growth and inclusive development.
           I understand that under the aegis of this initiative six events have been planned in association with various Industry and professional bodies across India in this month. I appreciate their support in partnering these events. The theme for this event is "Corporate Growth, Governance and Inclusion". India can surely do with more of forward movement on each of these issues. I shall be a keen observer of the deliberations at these events and look forward to a meaningful analysis of the deliberations and action pointers as may emerge there from.    
           The Indian economy has grown at a rapid pace during the current decade and in large measures this growth has come about due to the contribution of the corporate sector. However, the participation of the retail investors in the corporate economy has remained low in spite of the fact that substantial amount of household savings are available that can be channelized through various investment options. It would enable individuals and households to derive higher returns on their savings and thereby link the growth of corporate sector to the growth of their incomes. This requires an effective outreach initiative where people can be educated as well as encouraged to take informed investment decisions. I am sure this event would contribute to achieving this objective.
            There have been several initiatives by the Ministry of Corporate Affairs for investors, the foremost among them being the 'Investor Education and Protection Fund (IEPF)'. The basic intent is to provide educational content to the investors, maintain national registry of economic offenders, offer internet based investor grievance redressal mechanism and undertaking multi-lingual media campaigns to reach out to the investors across the country. Organizing a large number of investor awareness programmes through the partner entities is a part of the outreach programme.     
           The government plays an important role in nurturing corporate growth through improving the enabling environment for ease of doing business in India. This is a twofold process – one by putting in place an enlightened regulatory regime and the other by providing efficient services so that the entrepreneurial energies and growing foreign interest are directed at creating value for the stakeholders. In this context the most significant effort is the new Companies Bill. Given the theme of this Meet, it would be in order to briefly touch on some of the salient aspects.
           In 2009, the government had launched the Corporate Governance Voluntary Guidelines. The aspects which need to be incorporated in law have been included in the proposed Companies Bill. They are part of our effort to create a flexible and less regulated corporate governance framework. Moreover, regulations which are essential for protecting the interest of investors and making a Board responsible and accountable shall be the hallmark of the governance framework on the passage of the Companies Bill. We have to ensure that the interests of the corporates and the investors are finely balanced.
           The Companies Bill has brought in elements of laws that work well in other developed markets, such as accepting the changes in this digital age by allowing the use of video conferencing for board meetings, electronic voting in general meetings, electronic filings, shelf registrations, exit options for minority shareholders, and so on, as well as a few elements that make it contextual for India. The new Bill has consolidated many sections of the previous Act and has been trimmed down with the objective to present a law that is modern and relevant while incorporating global best practices and balancing the complexities and realities of operating in India.
           The Bill has been strengthened in the areas of oversight, protection of minority shareholders, management and business conduct and overall governance. Also the new Bill includes many provisions including those related to affirmative action for the protection of small investors, defining revised roles of directors to make them more effective and accountable, enhancing responsibilities of auditors as gatekeepers and laying down provisions that include severe punishment for fraud, false evidence or known misconduct for every person who has a duty of trust towards a company.
           It is said that no law is better than having laws that cannot be enforced or where action is delayed. The new Bill also envisages a quick redressal mechanism by providing for tribunals, special courts and even high courts delegating some of their responsibilities to lower courts for a quicker delivery of justice. Of course, ultimately the success of the proposed Bill with enhanced protection to society is largely dependent on the quality of implementation irrespective of how good the intent of legislature is.
           An important aspect of today's theme is "inclusion" and this could be aided by a constructive engagement between the corporate sector and the society at large. The concept of corporate social responsibility (CSR) is well understood but also misconstrued.  It could be looked as a concept that brings "inclusiveness" of both the corporates and the investors with the society of which they too are a part. Every company having certain net worth or turnover or net profit (as provided in the Bill) shall have a CSR Policy to endeavour to spend 2% of average net profits of preceding 3 years on CSR activities. The company shall formulate a CSR policy which shall be included in the Board's report and placed on the company's website. In case the company fails to comply, it will give suitable reasons in its Board Report. Companies covered under these provisions are also proposed to be required to constitute a CSR Committee of the Board to oversee CSR initiatives. The proposed bill will also include as a Schedule, an indicative list of CSR initiatives.  
            Apart from the investor awareness and protection initiatives mentioned earlier, the new Companies Bill has also proposed class action suits a measure which protects investors and also brings about governance. Special measures have also been introduced to strengthen the checks against corporate fraud and enable action in a time-bound manner. The new Bill proposes to provide enhanced powers to the 'Serious Fraud and Investigation Office (SFIO)' such as to search and seize the documents etc without an order from Magistrate.
           Let me conclude by saying that a very significant role is played by the corporate sector in the nation's growth and prosperity. To enable this growth and to encourage investment and innovation, the government's endeavour is to create an enabling framework within a transparent and equitable regulatory regime. In return, what is needed from the corporates is good governance, adoption of the best practices and sharing a part of their success with the society, so that all the stakeholders in the economy can contribute to an inclusiveness development in the country.
             I wish you and the event all success. I hope the deliberations at the meet are meaningful and incisive. I look forward to your feedback and suggestions in due course for evolving policy correctives for the mutual benefit of corporates, investors and the society at large."

(Release ID :80143)

Govt may lower STT in Budget to boost markets
The Finance Ministry is likely to reduce Securities Transaction Tax (STT) on equity trade in the forthcoming Budget in a bid to boost the capital market despite pressure to improve revenue collection.
The ministry, however, may not revisit the issue of Commodities Transaction Tax (CTT), which was aborted in 2009 after protests by industry, sources said, adding that the government is keen to go ahead with the broader policy of reducing the cost of financial transactions.
Industry associations, in their pre-Budget consultations with Finance Minister Pranab Mukherjee, have pleaded for maintaining status quo on tax rates to balance the need for promoting growth without sacrificing revenue.

Although the issue of imposing taxes on financial transactions has been raised in several international fora, India is not in favour of the idea. It has been argued that the Reserve Bank appropriates banking funds through the Cash Reserve Ratio (CRR), the portion of deposits which the banks are required to park with the central bank.

While the CRR, which was lowered by 0.5 percentage points recently by the RBI, stands at 5.5%, the Securities Transaction Tax (STT) is levied at 0.125% on the buyer and seller in equities transaction.

The stock exchanges and representatives of the broking community have been demanding the removal or reduction of STT to give a boost to capital markets by reducing transaction costs.

With regard to CTT, sources said the government may not re-introduce the levy, which was withdrawn after protest from commodity exchanges.

The government had in 2009 proposed a CTT of 0.017% on commodities derivatives trade, but did not implement the levy. It was argued that such a tax is not levied by any country with an active commodities future market.

The government is facing financial problems and the fiscal deficit for the current fiscal is likely to exceed the estimate of 4.6% of the Gross Domestic Product (GDP).

At a time when the government is hard-pressed for funds because of reasons like rising commodity prices in the international market and global uncertainties, it would be a tough choice to fore go the over Rs 7,000 crore which it collects from STT.
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Please Mr FM, don't pack your budget with just higher taxes

FP Editors Feb 6, 2012
Starting from April, get ready to pay more for a whole host of services because the central government is planning to widen the tax net quite significantly.
According to a report in Business Standard, the central government is putting the finishing touches on a proposal to introduce a 'negative' list for services in the forthcoming Union Budget.
For the financial year ending March 2012, total service tax collections have been pencilled in at Rs 82,000 crore . Reuters
On the list will be 20-22 categories of services ranging from construction and healthcare to entertainment, non-A/C rail fares and restaurants that will be exempt from service tax — outside that list, every service will be taxable, the report said.
The move is expected to boost tax collections by as much as 25 percent (and increase prices of these services as well). Services account for 60 percent of India's gross domestic product, but taxes from services currently account for less than 10 percent of gross tax revenues for the central government.
For the financial year ending March 2012, total service tax collections have been pencilled in at Rs 82,000 crore (against customs and excise collections of Rs 1,51,700 crore and Rs 1,64,115 crore, respectively).
While the step to widen the service tax net is logical, predictably, not everyone is happy with the idea. The movie industry has already called for a nationwide strike on 23 February to protest the imposition of a service tax, according to a report in the The Times of India.
Nevertheless, it has to be noted that the more-encompassing avatar of the service tax is part of a much wider tax reform, which will eventually see the introduction of  the Goods and Services Tax (GST).
As Firstpost has already mentioned before, GST, when introduced, will replace a multiplicity of taxes at the central and state levels on goods and services – excise, service tax, value-added tax, entry tax, purchase tax – with one single consolidated GST.
Boosting govt finances is key focus
Of course, the plan to cast the service tax net far and wide, arguably, does not stem from the government's desire to introduce tax reforms; rather, it's being driven by the need to boost its shaky finances with a higher tax take. As Deputy Chairman of the Planning Commission Montek Singh Ahluwalia recently told CNBC TV18, the finance ministry's focus would be onfiscal consolidation in the coming budget.
The government is expected to present a budget in mid-March for the fiscal year that begins on April 1, amid slowing economic growth and mounting concerns about public finances.
The government had targeted a fiscal deficit (gap between government revenues and expenditure) at 4.6 percent for the year ending March 2012. Now, it seems like it could come in at a full percentage point above that.
Indeed, the poor state of its finances could limit Finance Minister Pranab Mukherjee from offering too many goodies to different segments of the economy. According to a Financial Chronicle report, there might be no cuts in tax exemption limits for salary earners or in corporate taxes.
There are also fears that both excise and service taxes (which were cut in 2008-2009, and only partially restored in 2010-11) will be hiked to raise more revenues.
One can only hope that in the quest for fiscal consolidation, the finance minister will not pack the budget with only revenue-generating measures (read higher taxes). Some growth-inducing measures are badly needed as well.

India says it's always appreciative of foreign aid

Feb 6, 2012
Playing down media reports in the UK seeking stoppage of aid to India on the basis of a reported Rajya Sabha proceedings last year, India today said it has always been appreciative of foreign assistance.
"The expanse of our need is such that foreign assistance provided is very small portion of it," a senior government official said.
"There are niche areas where we require assistance and we have always been appreciative of efforts to provide that assistance," he said.
UK's 'Sunday Times' and 'The Sunday Telegraph' claimed Pranab Mukherjee had stated in the Rajya Sabha last August that India did not need British aid. PTI
The official was responding to reports in the UK's 'Sunday Times' and 'The Sunday Telegraph' that Finance Minister Pranab Mukherjee had stated in the Rajya Sabha last August that India did not need British aid which, according to him, was "peanuts". "We do not require the aid. It is a peanut in our total development exercises (expenditure)."
The official said everything was on record and one can look for themselves what was said in Parliament and what the story is saying.
The official said India has an ongoing process of trying to work with international partners which are willing to provide assistance, the areas they can provide help in and the quantum of that assistance.
Reacting to the media reports, the spokesman of the Indian High Commission in the UK had said yesterday that "yes, we have currently an aid programme with the UK. We are in ongoing consultation with British government on nature, future direction, priority and manner of disbursal (of the aid)."
Officials had insisted last night that British aid to India was necessary and that "now is not the time to end aid to India."

Fiscal consolidation needed for stimulating growth: RBI

New Delhi: Making a strong case for promoting fiscal consolidation in the forthcoming budget, the Reserve Bank today said that it was necessary to stimulate growth.
"We can't discount the importance of fiscal consolidation contributing to growth. It is not that growth first and then we get fiscal consolidation. They are interrelated," RBI deputy governor Subir Gokarn said in New Delhi.
RBI deputy governor Subir Gokarn. Reuters
The government's fiscal deficit in 2011-12 is expected to exceed the budget estimate of 4.6 percent of the GDP on account of subdued receipts and overshooting of the subsidy bill by at least Rs 1 lakh crore over and above the original projection.
Finance Minister Pranab Mukherjee had earlier indicated that he would announce steps to contain fiscal deficit during the budget for 2012-13 to be unveiled sometime in March.
Referring to the issue of inflation, Gokarn underlined the need for raising productivity of protein-based items which had witnessed sharp increase in the recent times.
"Drivers of food inflation are really supply demand imbalance. There has been a shift of demand towards protein based items. We ought to raise productivity of protein items", he said at an Edelweiss Investor Conference in New Delhi.
Although the food inflation has turned negative in recent past, the overall inflation was 7.5 percent in December. It is expected to moderate to 6-7 percent by March end.
As regards fiscal deficit, RBI Governor D Subbarao had earlier urged the government to put a cap on the public debt as it would hurt growth.
"There is an inflexion point beyond which fiscal deficits militate against growth. Government borrowing is not bad per se, but excessive borrowing is. There is therefore a need to cap total public debt as a proportion of GDP," he had said.
Watch video: India needs govt commitment on fiscal consolidation: Gokarn


6 FEB, 2012, 03.55AM IST, ET BUREAU

Budget 2012: What the budget could do for indirect taxes

Move towards GST

Though the government will take more time to build consensus on the Goods and Services Tax (GST), the budget could move in that direction to ensure a smooth switchover when the regime is rolled out.

Raise duty on gold

The government had recently increased the import duty on gold and silver, and also shifted from a specific duty to one levied as percentage of imports. At present, 2% duty is levied on imported gold. Given the high demand for gold, which is considered consumption, the duties can be raised moderately to discourage buying but not too high to revive smuggling of gold. This will also help cut current account deficit.

Rationalise customs duty

In the budget for the current year, finance minister had rationalized the Customs duty structure, replacing the multiple duties with a neater threeslab structure. The rationalization could continue in the current budget and it could also address the inverted duty structure in some of the industries.

Raise excise and service tax rates

The Centre had cut excise and service tax rates when the global financial crisis shook Indian economy to stimulate demand. Though the strategy worked in ensuring quick bounce back, the delay in rolling back the stimulus created inflation problem that has forced severe monetary tightening. The fiscal policy needs to be more neutral, in sync with monetary policy. And also yield more revenues for government struggling with a high fiscal deficit.

Increase duty on crude

The government had removed duty on imported crude to soften the impact of rising international prices on already high inflation. With inflation showing signs of easing, the duty could be restored to raise revenue for the government. The oil companies should be allowed to pass on the impact so that subsidy burden does not rise.

More stories from this edition of Budget for Renewal

6 FEB, 2012, 03.46AM IST,

Budget 2012: Parts of DTC that can be adopted now

The new Direct Taxes Code is unlikely to be passed by Parliament any time soon, but the Budget could unveil some key provisions of the Code, especially those that will prevent Vodafone-type deals to escape tax

General Anti-Avoidance Rule (GAAR)

A broad set of rules that will empower tax authorities to examine and in appropriate cases to disregard any arrangement where the arrangement has been entered into with the main purpose of obtaining a tax benefit and is characterized by features such as non-arm's length dealing, abuse or misuse of tax law, lacking in commercial substance or bona fides.

Indirect Transfer (IT)

The DTC provides for taxation of gains arising on transfer of shares of a foreign company if assets held by such foreign company in India, directly or indirectly, at any time during the year preceding the transfer, constituted at least 50% of its total assets. Thus, if the asset holding threshold is met, indirect transfers will be taxable in India.

Place Of Effective Management (POEM)

Aimed at preventing tax base from shifting out of country, the proposed law tightens definition of who qualifies as a resident. Proposed law provides that a company will be resident in India if it is an Indian company or if at any time during a financial year its place of effective management is in India. The present law defines India resident companies as those which are registered or are controlled and managed wholly in India.

Controlled Foreign Company (CFC)

Presently, income of Indian controlled foreign companies is not taxed in India until such income is brought back to India. The proposed CFC regime aims to tax this income.

Branch Profits Tax (BPT)

The code proposes to impose 15% tax on branch profits in addition to the income-tax payable. The branch profit for the purpose of levy of this tax will be the income attributable, directly or indirectly, to a permanent establishment or an immovable property situated in India as reduced by the amount of income-tax payable on such attributable income.

Advance Pricing Agreement (APA)

This is a measure aimed at providing certainty. APA is an arrangement between a taxpayer and the tax authority covering future transactions, wherein the transfer pricing method to be applied for a certain future period of time are mutually agreed upon.

Compiled by PWC

6 FEB, 2012, 03.35AM IST,

Budget 2012: Balancing growth & tax burden key

Over the last 4 years, deficits as a percentage of GDP have increased from 5% to more than 7%, although the central and state government debt has fallen over the same period from 80 to 65% of GDP. The overall tax burden remains at less than 17% of GDP ,which is the lowest of the BRICS and way below the OECD average of 36 % and the average in Latin America(22%). Not only is the tax burden low but it has failed to grow as fast as in the other BRICS.

This is the context in which the 2012 Annual Budget exercise must be seen . Five priorities must be set for the Budget.

First, there must be a renewed push to introduce a comprehensive Goods and Services Tax. Numerous studies have shown that the current system is too complex, distorts the allocation of capital, acts as a barrier on inter state trade and imposes a significant compliance burden on business. In the current economic environment, replacing this myriad system with a simple dual GST operating at the State and Federal level would give a well needed boost to the underlying growth potential of the Indian economy. The design parameters of the new GST are clear: what is now required is the final political push to get the tax implemented.

The second priority is to push ahead with the implementation of the new direct taxes code. At the level of the personal income tax, there needs to be a renewed effort to expand the tax base by eliminating unnecessary tax reliefs build into the system and by seeing whether more citizens could be brought into the tax net .Little change is required in the rate structure which is already progressive in relation to that found in other countries at a comparable level of development.

The corporation tax is an important source of revenue in India and care needs to be taken to avoid that it becomes too much out of line with similar taxes in the countries with which India is in competition for investment. Already, the rate of 34 % in 2011 is relatively high compared to many other Asian countries. Again, the emphasis should be on reviewing the tax base and in particular analysising whether the different forms of tax incentives are generating new investment which would not have taken place in their absence.

The experience in many other economies in transition suggest that for every one dollar of tax revenues given up in tax expenditures less than one dollar of new investment is generated. Since the government has decided to pursue the use of SEZ, it is important to put in place mechanisms that enable a transparent evaluation of their effectiveness. Protecting the corporate tax base against aggressive tax planning should be easier with the recently introduced minimum corporate income tax and with the introduction of a number of anti abuse measures.
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More stories from this edition of Budget for Renewal

Service tax net may widen
Budget likely to list tax-exempt items as finance ministry, states agree
Vrishti Beniwal / New Delhi Feb 06, 2012, 00:07 IST

Get ready to pay tax on every service barring those in some 20 categories such as construction, health, entertainment, restaurants, non-AC rail fares, travel by the metro or public buses, etc. A key official says the way has been cleared to bring this proposal in the Budget, as the finance ministry has agreed to take states' concerns on board.
Services constitute more than 60 per cent of India's GDP, but are projected to contribute just 8.7 per cent of the Centre's gross tax revenue in the Budget estimates for 2011-12. That is because service tax is a relatively new area in India. There was no tax on tertiary activities before 1994, when only three services came under the net. Progressively, the net has widened to include over 125 services under its ambit, but that too is minuscule relative to their size in the economy. Analysts believe this step would alone increase service tax collections 20-25 per cent, which would help in narrowing the fiscal deficit.
States' opposition could have been a major roadblock in introducing a list of categories of services that would be out of the tax net, technically called the negative list of services. States wanted the Centre to prepare the list in such a way that areas under their domain were not taxed by the Centre. States do not impose services tax, but certain categories that qualify as services are taxed by them under different heads.

* Service tax was introduced in 1994-95, with only 3 services covered; the number is in excess of 125 now

* The tax contributed Rs 410 crore to the Centre's kitty in the first year

* This financial year, the target is to collect Rs 82,000 crore from the tax

* Till December, Rs 67,706 was collected, up 37.20% y-o-y

* The number of assesses rose from 3,943 in FY'95 to 1.3 million in FY'10

As such, businesses paying tax to states may not be subjected to service tax by the Centre.
A finance ministry official said if levying service tax on items already taxed by states was creating hurdles in the way of a negative list, it would be better to keep them out of the tax net for the time being and tax them under the proposed goods and services tax.
"The Centre will be able to tax such services after making suitable amendments to the Constitution, but till then those can be kept in the negative list," said the official.
In its meeting in Bhopal last month, the Empowered Committee of State Finance Ministers had given its approval for the introduction of a negative list for services from April 1, 2012. The nod, however, came with riders, with states telling the Centre not to venture into their territory by levying service tax in areas such as construction, entertainment, restaurants, transport, toll, betting and gambling.
Most of these categories could be clubbed with a negative list floated by the Centre for discussion, except for, say, entertainment.
Last year, the finance ministry had released its revised discussion paper on the concept of a negative list for services, which proposed to keep 22 categories out of the tax net, against 28 proposed earlier.
States also proposed some services within the ambit of the Centre's residuary powers but critical for socio-economic reasons, such as social welfare and public utilities, agriculture, education and health, be kept in the negative list.
In fact, the official said a few areas may not be in the negative list, but the Centre may decide to impose zero tax on them.

Budget 2012-13: Will agriculture and infra be key beneficiaries?

FP Editors Jan 17, 2012
he Union Budget for 2012-2013 will be an interesting one to watch, not just for the local audience but for foreign observers as well.
India's gross domestic product threatens to expand by a lowly 7 percent in the fiscal year ending March 2012 and investors, businesses and consumers will be watching to see if the government takes any confidence-boosting steps to reverse that trend.
According to a report in The Economic Times, they won't be disappointed.
It predicts Finance Minister Pranab Mukherjee will introduce a reforms-studded budget to spur investments and economic activity.
Investments in agriculture will be particularly welcome because they will go a long way in reducing wastages, improving output and most importantly, curbing food inflation. Fayaz Kabli/Reuters
The measures will, in particular, include sops for infrastructure, as well as incentives for investments in sectors such as fertilisers, cold chains and agricultural supply chains. "Driving investments will be one of the key areas. The focus would be on measures for sectors such as infrastructure and those that benefit agriculture and employment generation," a government official is quoted as saying by the newspaper.
About time too. Large-scale investments have practically stalled in the country due to a toxic mix of regulatory hurdles, environmental and land acquisition issues and high interest rates.
Investments in agriculture will be particularly welcome because they will go a long way in reducing wastages, improving output and most importantly, curbing food inflation, which, notwithstanding the current and possibly temporary dip in food prices, seems like it will be around for quite a while.
Earlier, the government had sought to improve the agricultural supply chain by allowing foreign retail giants like Wal-Mart and Carrefour to open shops in India if they invested a certain portion of their funds in back-end (supply) infrastructure.
However, that proposal backfired after intense political opposition to foreign entry in India's multi-brand retail sector forced the government to retreat on the idea.
Nevertheless, the fact remains that agriculture is crying out for investments and reforms for the sector will be a big plus for the economy — and the government, which, in recent times, has been accused of being 'policy comatose.'
Ditto for any measures to promote infrastructure, which has felt the brunt of a drop in investment proposals (they dropped to a five-year low recently). There is absolutely no argument over the fact that India needs more roads, ports and railways.
Of course, this possibly reformist zeal to further throw open the doors to private investments is, no doubt, being stoked by the fact that on its own, the government has very little to spend to prop up the economy.
A yawning fiscal deficit (the gap between government revenues and expenditure) has left the government with little choice but to depend on increased private investments to lift economic growth into a higher orbit.
In other words, the reforms, if they take place, will be the result of a cash-strapped government whose back is against the wall — much like when the first round of reforms were introduced in 1991-92.
In a story last month, Firstpost had already said that the chances of seeing a reformist budget are high in March. As the story noted, "… it makes more sense for Pranab-da to bite the reforms bullet this year rather than next, given that 2013 will be too close to the general election, which the Congress would like to use as a platform to project Rahul Gandhi into office. That is likely to be a blockbuster year for welfare policies and giveaways. In effect, therefore, Pranab-da has a very small window to get his reforms act together."
It's now or never for the government's reformist zeal to strike.
Palash Biswas
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