Finance Minister Arun Jaitley presented the budget for fiscal year 2017-18 in Lok Sabha Wednesday halving the tax to 5% on incomes up to Rs 5 lakh, proposing a new surcharge of 10 per cent on incomes between Rs 50 lakh and Rs 1 crore, stepping up allocation in rural, social sectors and announcing infrastructure status to affordable housing to encourage investment in the sector.
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Iyer: “The biggest highlight is sticking to the fiscal deficit. Or actually ensuring that you are not crossing the 3 per cent of GDP for the next financial year. He (Jaitley) had an opportunity: the FRBM committee report which gave him an escape clause of deviating by about 0.5% GDP. But he stuck to it. So that’s a remarkable thing. I think that was the most critical thing.
He (Jaitley) has also talked about a new law to confiscate property which I don’t know how it will work. He said he will do it in the constitutional scheme of things but I think there will be red flags in that proposal. Third is the reduction of the income tax rate from 10% to 5%. I think this is interesting for the lowest income levels. It does save about Rs 12,500 for every individual as he said. He has also brought down who the rich are. The rich are over 50 lakhs today. There is a 10% surcharge and all the rich are in the salaried class. It is most likely that the guys who are paying tax, from one hand he has given them Rs 12,500 and for the rich who are again paying taxes, the salaried class, he is taking 10% surcharge. To my mind, that is very populist thing to do.”
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Shaji: “The data from the past show that there is a disproportionate number, a small number, who contribute more than 60 or 70 per cent of total taxes. So I don’t think it’s going to change. So finally, you will be forced to do measures like what he has done with increasing surcharge on those with income from Rs 50 lakhs to Rs 1 crore. So till the time he expands that tax base, I think these are the only measures you can do, which is going to be unpopular. And we have seen lowering of the tax rate after almost 20 years which has stood the test of time. so finally, if you can expand this tax base beyond a point which he is hoping to do, it will be very difficult in terms of increasing revenue and ultimately the fiscal deficit.
Also regarding the affordable housing programme, to get it done in big cities like Delhi or Mumbai, it is going to be formidable. Pooling land will be a huge challenge for them.”