Finance minister Arun Jaitley said on Wednesday the philosophy behind his budget is to spend more on identified success stories and carrying on with the government’s campaign against black money, hours after unveiling measures to assure the country that the impact of demonetisation would wear off soon.
Jaitley told Hindustan Times the drive to scrap high-value banknotes laid the groundwork for the lowering of interest rates and propelled the lending capacity of banks. He also said the government of Prime Minister Narendra Modi was taking steps to ensure incentives for those who entered the tax net.
Here are excerpts from the interview with the finance minister:
Q) Electoral bond and streamlining of political funding is one of the big announcements inthis budget. How do you foresee this measure helping in cleaning up the present system?
When I was the law minister, I conceived a scheme where people donated to a political party in cheque; there is 100 % rebate to donor and tax exemption to parties. Pranab babu (Pranab Mukherjee) improved it, allowing people to pay it to a trust and then to party, but it has not worked perfectly. All donors that we spoke to said they hate to pay in cash but the identity should be concealed. We have to create a new system. So we have created a new scheme. Encapsulating the sentiments of donors and the government’s determination to clean up the funding process, the electoral bond scheme will help conceal the identity, at the same time the donor pays by cheque and parties get the payment in white in a previously operated account so that election commission can keep a track. Like the Obama campaign, rather than taking donations from a handful, let a million people pay digitally.
Q) Do you think the political parties are prepared for this?
Parties would love it. A large part of spending by political parties nowadays is through cheques. They have to maintain an office, pay salaries, advertisements, hiring aircraft and choppers; all theseinvolve white money. However, for this scheme to truly succeed, it will also have to involve mass digital collections.
Q) Do you think the relief on personal taxation may have fallen short of people’s expectations?
Tax net has to be expanded, not shrunk. The vulnerable have to be helped, not so much the affluent. All the measures we are taking, we have to make sure that we provide a great incentive for the people to enter the tax net. If the people declaring in the first bracket realise that by paying nominal tax and half-a-page of filing and no scrutiny in the first year can create capital, it’s a great incentive. Also, coupled with the pressure from the government to come clean, especially after demonetization, this is a great opportunity.
The larger philosophy of the tax scheme is the following: the Goods and Services Tax (GST) will make cash generation difficult. The Rs 3 lakh limit on payment by cash we have put along with PAN card limits on unaccounted expenditure de-incentivises the use of cash. Large deposits during demonetisation had removed the veil of anonymity on cash holders, so for the tax payer, it is better to enter the tax net. Simplification of tax filings and a nominal tax advantage to the first bracket will also go to the Rs 5 lakh and Rs 10 lakh category.
The peculiarity of this budget is that after demonetization – and it has affected the economy marginally -- nobody pays more and everyone gets tax advantage, except those with incomes in the range of Rs 50 lakh- RS 1 crore range.
Q) You have set an ambitious target for personal income tax collections, but same is somewhat conservative for corporate taxes. Why?
I have brought down the tax rate for companies with Rs 50 crore turnover. In fact, 96% of the companies fall in this category. I am also incentivising firms to become companies and pay less. What this means is some revenue will be foregone in the immediate context, but there will be more transparency of accounting and regulatory filings with the Registrar of Companies.
Q) You are forgoing about Rs 20,000 crore in direct taxes. How do you plan to make up for this?
My direct tax collection has grown at 17% consistently in last two years because of the government’s efforts to bring more people under the tax net and better revenue collection. This year, my projection is 12% growth. I will cover up on that count.
Q) The budget is silent on gains from demonetisation. Can you tell us how has it benefitted the economy?
The banks’ lending capacity went up -- that is because of demonetisation. The lower interest rates are due to it.
Q) But demonetisation has adversely impacted the informal credit system, how do you address that challenge?
We have refurbished credit with rural cooperatives…. Entry of payment banks will revolutionalise credit systems.
Except increasing the tax exemption limits of provisioning for Non-Performing Assets (NPA), the subject did not get as much attention it deserves. What do you have to say to that?
Raising the exemption level will benefit the banks only marginally. It gives some relief in their balance sheet. The recapitalisation of banks is going as planned. We have made rules tougher for those who flee countries by defaulting. This will ensure more compliance. Listing and trading of security receipts issued by a securitisation company or a reconstruction company will be permitted in Sebi registered stock exchanges. This will enlarge capital flow into the securitisation industry and will particularly be helpful to deal with bank NPA.
Q) How much of a difference did Donald Trump’s protectionist policies and the state assembly elections bring to the budget?
Not too many. Except one or two tax reforms, which we can revisit during the course of time, nothing really.
Q) What is in there for the voters in poll-bound Uttar Pradesh and Punjab?
Farmers and traders are beneficiary of this budget. There are no regressive taxes, rural credit has been reinforced. They will benefit from the overall economic growth.
Q) There was a lot of focus on the Universal Basic Income, but no mention in the budget. Where are you on this?
Our country suffers from the lack of mature political debate. Politics has to mature to realise that direct transfer to a focused beneficiary is a better alternative to scattered and untargeted subsidies. Rich are getting those subsidies that they don’t deserve… we could actually channelise it to the needy. In the Economic Survey, we have floated a very good idea and hope the political parties rise above politics for the larger good of the poor.
Q) What is the benefit of listing some of these Public Sector Enterprises (PSE) listed in stock exchange? How does the government stand to gain from it?
Firstly, the PSEs gain. Their compliance level goes up. Mandatorily, 26% has to be held by public, so that money comes to the government. So this is in a way strategic disinvestment.
Q) What is the larger philosophy of the budget?
First of all, spend more on identified success stories. Like rural roads, Bima Yojana, infrastructure projects, irrigation projects, rural electrification, highways, rural and social sectors. Secondly, carry on with campaign against black money and bring more people into the tax net.
Q) Would you count MNREGA on that list?
Under the present circumstances, yes.
But you have not really increased the budget allocation. It is almost flat. If you look at last year’s revised estimates, it is Rs 47,499 crore. You have only increased it by 550 crore.
I have not been dogmatic about it. I have increased the allocation in the previous financial year and I will increase it, if need be.
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