The Budget for 2012-13 today hiked excise duty and service tax by 2 per cent across-the-board to raise Rs 45,940 crore and offered marginal relief to individuals in income tax,stoking fears of adding to inflation but contained no big ticket reforms.
Prices of all non-oil goods are likely to go up on account of the 2 per cent raise in the effective rate of excise duty of 10 per cent and service tax as well as on account of the widening of tax net to all services,except 17.
Quoting from Shakespeare’s immortal words in the ‘Prince of Denmark’ that “I must be cruel only to be kind”,Finance Minister Pranab Mukherjee sought to raise an additional Rs 27,280 crore through customs and central excise levies and Rs 18,660 crore through service tax.
While the Opposition slammed the Budget as inflationary that will further burden the common man,a view shared by the corporates,Prime Minister Manmohan Singh and Mukhejree said it will help in fiscal consolidation and take the economy on growth path.
Corporates expressed disappointment that the government was not taking any serious steps at economic reforms and said it was a missed opportunity.
One bold move the Finance Minister intends to carry forward in the next three years is to bring down subsidies from 2 per cent of the GDP to 1.75 per cent,an intent that created speculation that the government could resort to hiking petrol and diesel prices.
However,Mukherjee in media interviews hedged the possibility saying there is need to carry all the coalition partners before a decision is taken in this regard.
The Budget left untouched the corporate taxes and the peak customs duty and gave tax concessions to infrastructure sectors like power,airlines,road and bridges and hospitals,cold-chain facility and affordable housing.
Mobile phones,branded silver jewellery,branded garments,imported LCD and LED TV panels of over 20 inch and matches will be cheaper on account of duty reduction while two-wheelers,cars,refrigerators,air-conditioners,washing machines,watches,soaps,cigarettes and bidis,air travel,pan masala and chewing tobacco,gold and unbranded metal jewellery and imported bicycles will cost more.
Sacrificing Rs 4,500 crore in direct taxes,the Budget provided marginal sops to the salaried class through a tax relief up to Rs 2,000 for those at the threshold stage by raising the exemption limit from Rs 1.8 lakh to Rs 2 lakh.
The upper limit of the 20 per cent tax slab is being raised from Rs 8 lakh to Rs 10 lakh. Those with income above Rs 10 lakh will continue to pay 30 per cent tax.
In addition,a deduction of up to Rs 10,000 has been allowed for tax payers for interest from saving bank account.
This would help a large number of small tax payers with salary income up to Rs 5 lakh and interest from saving bank accounts up to Rs 10,000 as they will not be required to file income tax returns.
Within the existing limit for deduction allowed for health insurance,the Budget proposed to allow up to Rs 5,000 for preventive health checkups.
Senior citizens who do not have any income from business are proposed to be exempted from payment of advance tax to reduce their compliance burden.
To the capital market,the Budget had something to offer by way of reducing the Securities Transaction Tax (STT) from 0.125 per cent to 0.1 per cent as also announcing a income tax deduction of 50 per cent to new retail investors with income below Rs 10 lakh who invest up to Rs 50,000 directly in equities.
As a measure of support to the ailing civil aviation sector,the Budget fully exempted from basic customs duty imports parts of aircraft and testing equipment and allowing external commercial borrowings of up to USD 1 billion.
Duty-free baggage allowance for Indian air travellers has been raised from Rs 25,000 to Rs 35,000 and for children up to 10-years from Rs 12,000 to Rs 15,000.
Flowing out of the adverse verdict in the Vodafone tax case on sale of capital assets located in India outside the country,the Budget seeks to amend the Income Tax Act retrospectively from 1962 to bring under the scanner 50 year old deals.
The proposal has come under attack from the corporates which said that it was retrograde and the government does not seem to learn lessons.
Dispelling apprehensions that the measure could lead to uncertainty among overseas investors,Mukherjee said it also was necessary to avoid demands for return of tax collected.
It is also aimed to tackle the problem of investors enjoying zero tax in double taxation avoidance agreements (DTAAs) going to a zero tax country and avoiding tax in India which defeats the purpose of DTAA.
In a bid to tackle the menace of blackmoney,the Budget proposes amendments in law to compulsorily report assets and revenue held abroad and allowing for reopening of assessments up to 16 years in such cases.
Other measures include tax collection at source on purchase in cash of bullion or jewellery in excess of Rs 2 lakh,transfer of immovable property and trading in coal,lignite and iron ore.
The additional resource mobilisation in this Budget breaks the practise in the last few years of being low on fresh taxes,expect in 2010-11 when the net gain was Rs 20,500 crore.