In an act of outstanding political statesmanship, the Finance Minister has hit all the high points, without promising out of turn. He has, in a masterly speech, reached out to people at the bottom of the pyramid, rural India through power, infrastructure and housing, urban job holders by abolishing surcharge on income tax and the FBT, corporate India by not rolling back the stimulus.
Why, then, have the markets tanked?
Largely because its hard to connect the dots instantly in a complex, multi-dimensional budget document and because no earth-shattering statements or giveaways were announced. This is a typical case of missing the intention by focusing on sensation!
As the contours of the new direct tax code, the road-map to GST by 2010 and the e-governance initiatives emerge, the markets will claw back smartly. This is a clear opportunity to invest.
Let’s look at disinvestments for a minute. In an early part of his speech, he mentioned divestment and growth leading to larger tax collections as the two primary routes to fiscal consolidation. He also mentioned that equity owning will be greatly enhanced and a calibrated approach to enhancing free float in all scrips would be adopted.
These ideas, combined with stable and uncomplicated tax laws, speedy dispute resolution and a fairness in tax collection (the honeybee syndrome) will create the growth path, the investment attractiveness and the decoupling that India needs. It is not appropriate to expect exact actions being shared on a big-bang budget day. The Ministries will now step up their efforts to put in place a path to achieve appropriate targets.
Key direct tax changes are:
The enhancement of MAT to 15% from 10% is not a significant move as it is counterbalanced by an extension of the setoff from 7 to 10 years. In any case, MAT is like an advance tax payment as the moment a corporate reaches a full tax payment position, the MAT is immediately offset.
The marginal enhancement of exemption limits and a removal of surcharge benefit the high tax payers more than proportionately as the 10 per cent surcharge removal at a level above Rs 10 lakh provides huge benefit to high tax payers.
For transporters, the cash payments limit has been raised to Rs 35,000 from Rs 20,000.
Partners in a firm will enjoy a lower tax incidence
Political contributions to be 100% exempt if the electoral trust is approved
Corporate India stands to benefit greatly. Investment linked (100 per cent of investment) tax exemption for cold chains, warehousing for agro products and gas and oil pipeline networks; power and export activities to enjoy extended tax holidays; tax exemption for national gas producing entities; special exemption for NHB for refinancing of rural homes, and removal of FBT, which will reduce very considerably the administrative workload and unnecessary additional burden of cost.
The return to FRBM targets is an announced policy and all of us will track him on this one. If this happens over the tenure of this government, nothing will be lost.
All in all, this is a budget which has made positive, long-term intentions clear. We will have to wait for the series of initiatives which will inevitably follow to take a final call on it!
(The writer is a senior chartered accountant.)