Budget 2013: UPA’s boldest direct tax drive targets the rich

Move to tax individuals with taxable income above 1 cr to collect an extra 13,300 cr,surpassing direct tax revenue gains made by Chidambarams previous five Budgets

In the most aggressive drive in a decade to raise direct tax receipts,finance minister P Chidambaram cast the tax net deeper in the Union Budget 2013-14 to collect an extra R13,300 crore,surpassing the direct tax revenue gains made by his own previous five Budgets. This contrasts starkly with the Budgets presented by his predecessor Pranab Mukherjee,whose direct tax proposals were either revenue neutral or at a net revenue loss. The maximum Chidambarams Budgets had earlier sought to raise by way of direct taxes was R6,000 crore in 2005-06.

Turning to the relatively well placed in the society to raise resources in a difficult year,Chidambaram proposed surcharge on individuals and companies above certain income levels,introduced a transaction tax in non-farm commodities (CTT) and proposed anti-tax evasion steps. The CTT paid,however,will be allowed as a deduction on income from commodity trade. He also raised the tax on payment of royalty or fee for technical services to non-residents from 10% to 25%.

While he kept personal and corporate income tax rates steady,surcharge has been increased across the board to mop up extra revenue. Individuals with taxable income above R1 crore will have to pay 10% surcharge,making 42,800 people to pay more taxes in 2013-14. The maximum effective tax rate for such an individual would be 34%, said Homi Mistry,partner,Deloitte. Firms and local authorities with similar income too have to pay the same rate of surcharge.

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In 2013-14,a 10% surcharge to be deducted at source on payments to non-residents other than companies with income over R1 crore and a 2% surcharge on non-resident companies with income of R1 crore-R5 crore and a 5% surcharge on companies above R10 crore income is applicable. This is applicable for advance tax payments too. I am confident that when I ask the relatively prosperous to bear a small burden for one year,just one year,they will do so cheerfully, Chidambaram said. The governments focus appeared to be redistribution of wealth ahead of the 2014 polls.

Although he promised a non-adversarial tax administration,he did not announce any intention to dilute the retrospective amendment of Section 9 of Income Tax Act introduced last year with an eye on re-issuing a tax demand on deals similar to the Vodafone-Hutch transaction of 2007.

The retrospective amendment had clarified that the country where the economic nexus of income exists,has the right to tax,irrespective of where the assessee is incorporated. In the post Budget press meet,Chidambaram said that the recommendation of the Parthasarathi Shome panel that the government could waive off interest and penalty on past cases,could be considered at the appropriate time. The R11,000-crore tax demand to Vodafone thus remains alive,enabling the FM to play further hard ball with the company.

Chidambaram added that conciliation can be a way forward in the tax dispute with Vodafone as suggested by the company. The matter is before the cabinet. Conciliation,unlike arbitration,by definition is non-binding on parties, the minister added.

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Some tax incentives were proposed for the low income groups and the industry. The R2,000 tax credit given to those with annual income of R2-5 lakh will benefit 1.8 crore tax payers. A 10-year income tax holiday will be available to power plants starting generation before March 31,2014. First-time house buyers will get an additional R1 lakh deduction towards interest payable on loans taken up to R25 lakh. Chidambaram also addressed some areas of tax evasion.

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