Finance Minister Arun Jaitley on Monday presented the Union Budget for 2016-17, paving the way for simplification of tax law and providing options to put to an end to disputes. At the same time there is some relief in the form of a presumptive taxation regime for small business houses. In an interview with FE’s Siddhartha P Saikia, Jaitley discusses the contours of his Budget. Excerpts:
Experts say that you have focused only on agriculture while ignoring other sectors. What are your views on this?
This Budget gives the reality of India. The reality of India is that there are serious challenges as far as agrarian sector is concerned. And therefore you have to address agriculture and rural infrastructure. At the same time, you have to address physical infrastructure and social sector commitments. This Budget is a combination of several things … In addition to priority to agriculture and to rural sector, I am putting in place targeting of subsidies through a legislation which I would introduce immediately. Also, how would you call a reform in the transport sector? Moreover, there are steps for resolution of disputes, banking distress, gas exploration, selecting universities to make them globally competitive, setting of infrastructure disputes. I think this is largest ever simplification of tax laws. This Budget addresses the sectors that need to be addressed and obviously rural India is the sector that needs to be addressed most.
Would you elaborate on the legislation that you propose to bring in immediately?
Since this legislation would soon be introduced, Parliament has the first right to know about it. What I can mention is that it keeps away the issues that arose in the context of the Aadhaar earlier. And the principle purpose of this legislation is that funds are spend either from the Centre or the states’ kitty, so you can make Aadhaar mandatory and ensure that the right person gets the benefit and the same person do not get the benefit twice.
Are you confident of achieving fiscal deficit of 3.5% of GDP?
There were three different opinions. One was to strictly adhere to 3.5 per cent, there was another … to stick to 3.5 per cent but spend more, and it doesn’t matter if it is marginally altered. And there was a third view saying that this year stick to 3.5 per cent but at the same time review for the future and see if you want to have a figure or a small range. There are circumstances globally which keeps on changing. All I have said that we would stick to 3.5 per cent and it is imminently achievable.
How do you see the fiscal consolidation scenario?
As far as the fiscal consolidation agenda is concerned or as far as public sector banks (PSBs) are concerned, the government has already said that it would bring down its equity. In the longer run, it will bring it down to 52 per cent. The immediate agenda is to strengthen the banks. What I announced today is not the last word on re-capitalisation, and therefore, be prepared that there would be something more. There would be some amount carry forwards from the current year. And thereafter, we are willing to look at consolidation among subsidiaries, subject to the overall discipline of 52 per cent we have laid down for ourselves.
What do you have to offer for salaried and small business income holders?
The salaried class has a simple tax regime. Now, we are bringing business houses with a turnover of Rs 2 crore to that level.
What do you mean by way of presumptive tax regime?
The presumptive tax methodology has given relief to small tax payers, as well as professionals. Now, a monumental change is to bring it to presumptive tax. It makes your assessments simpler and do not scare away people. For all businesses, below Rs 2 crore turnover, there is a presumptive income of 8 per cent. If you want to pay less, then maintain your books. But if you are happy with 8 per cent or simply put on a income of Rs 1 crore, you pay tax for Rs 8 lakh and even bring it further down by claiming deductions. This would cover lakhs and lakhs of people. For professionals, there are disclosure issues, but for a trader or a workshop owner he pays for the materials supplied. The professionals’ presumption should be lesser. By presumptive income, this is a large body of middle class tax payers, who gets an advantage.
The Budget gave more benefits to small tax payers. Why is it so?
There are five-six aspects of taxation. First, the small tax payers: he gets two reliefs — for less than Rs 5 lakh income, he gets another Rs 3,000 deduction benefit. For those who stays in rented houses, the limit has been increased to get the advantage up to Rs 60,000 deduction.
Now if you look at how to strengthen the purchasing power of this category: Lot of people talk of exemption benefits. But, even an individual in the 30 per cent tax bracket gets the exemptions.
The idea is to keep the small income holders in the tax net and give him an advantage, which the wealthy doesn’t get.
Are you making a ground for roll out of Goods and Services Tax (GST)?
Whatever tax decision we are taking, all of them are making the environment towards the GST. Suddenly, we hike service tax to a standardised rate overnight — it is not possible. These are small steps.
But, you have introduced new cess, while GST is a one-rate regime?
The finance minister has a tough job. He needs to spend and at the same time, needs to maintain 3.5 per cent (fiscal deficit). Once the GST comes, the cess would cease. But till it doesn’t come, resource mobilisation is necessary, if one has to spend more. Then service tax has gradually has to converge to GST. Now, you are almost there.
You did not bring down the corporate tax rate as it was envisaged. Why?
I had the credibility issue that I have to start corporate tax reduction this year. But, if I withdraw the exemptions retrospectively, I am allowing the sunset to exit. So, I am not getting any benefit this year. Now, I have said that any manufacturing unit set up this year and if it does not claim any exemptions, it can start paying (tax) at 25 per cent.
Second, all companies below the turnover of Rs 5 crore, basically I covered the entire SME section, have started the reduction at 29 per cent. So, gradually, we would move forward.
On indirect tax, I have altered the excise the customs, where I have to protect ‘Make in India’. Which are the categories I have made to paid tax: environmentally and health-wise sensitive products, and the very wealthy and super rich.
You have brought in amnesty scheme also. How would it help?
I want to clean the mess on the table. This is not the amnesty scheme. But, it different from scheme 97, where you pay 30 per cent without any penalty. The second defect in that scheme was people were using 10-year old valuation of jewellery and property. It was a discrimination against honest tax payer. I am calling it as income that has escaped assessment. So, now one has to pay 30 per cent plus 15 per cent or total 45 per cent tax. So penalty plus cess is almost 50 per cent, which is huge tax and not amnesty. Secondly, it would be current value. Both the flaws of scheme 97 declaration has been plugged. This is a income disclose scheme.
And you have given option to settle tax rows?
Yes, for both direct and indirect taxes, if you want to settle I am giving you option. Pay the principal and interest as on date and go. Lastly, retrospective tax, pay the principal and get away.
You have renamed the Department of Disinvestment. What new approach is in your mind?
Today, I am talking about asset recycling. For example, if PSU has 20 units, we decide to divest two of them. So these two would go somewhere else and the PSU would use this money to set up two new units. The private sector can run the two units and country will get four units. ReITS is recycling of assets. Actually divestment is a wrong name, it is governmental or public investments. Whether the Centre want to keep its share high or make infrastructure development is the question. It is an asset of Centre and it has the right to use it to make alternate resources.