The Union budget was presented at a time when the macroeconomic backdrop has been challenging with the crude prices hovering at around $110 per barrel, domestic inflation at elevated levels and current account deficit at historically high levels.
The Union budget was presented at a time when the macroeconomic backdrop has been challenging with the crude prices hovering at around $110 per barrel, domestic inflation at elevated levels and current account deficit at historically high levels.
The key focus expected was therefore fiscal consolidation. The thrust areas to be focused were reducing revenue expenditure, particularly on subsidies and boosting tax revenues rather than relying on the gains from disinvestment.
On the taxation front, introduction of DTC and the proposed GST seem to be on track. There has been also considerable progress towards GST and as said by the finance minister the areas of divergence have been narrowed. It is proposed to introduce the constitutional amendment bill in the current session of the Parliament. The introduction of GST should prove to be a huge boost to the India Inc.
Considering that the DTC is proposed to be implemented from April 1, 2012, there does not seem to be many changes on the direct tax front. However, there have been considerable changes in the indirect taxes and service tax legislations.
Among the changes in the tax provisions, the key ones are as under:
Corporate surcharge has been reduced from 7.5% to 5%, however, the MAT rate has been increased from 18% to 18.5% (the effective MAT rate works out to approximately 20%).
Harmonising individual taxation towards DTC, basic exemption limit is proposed to be marginally increased from current Rs1.6 lakh to Rs1.8 lakh. This should provide for a tax relief of approximately Rs2,000 across the board.
A major setback would be for the SEZ developers where it is proposed to levy MAT. This could severely impact the industry. There also has not been any mention of STPI and infrastructure benefits for IT and infra companies, which could be deterrent for the industry.
Non-availability of seven year tax holiday for blocks licensed under a contract awarded after March 31, 2011, could be deterrent to oil/mineral oil industry.
The removal of MAT exemption to LLP could severely curb the incentive accorded to them.
Extension of sun-set clause for tax holiday in respect of power sector by a year i.e. up to March 31, 2012, provides a relief to the power sector and gives them the needed clarity on the unclear tax treatment that was prevalent for undertakings which begin operation between March 31, 2011, and March 31, 2012.
Allowing duty free import of spare parts by shipping firms is a positive move.
While significant steps are taken towards policy initiatives, controlling fiscal deficit seems to be a major concern. However, the budget should provide a possible boost to India Inc. Policy measures to the end of converging current tax policies with DTC and GST are highly commendable.
Samir Kanabar is tax director, Ernst & Young
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}