Modi govt's maiden Budget awaited

Arun Jaitley is expected to announce sale of government stakes in major public companies to raise funds and bridge the gap between revenues and expenditure.

July 09, 2014 5:13 IST | India Infoline News Service
The Modi government may probably introduce bold reforms in its Budget 2014-15 tomorrow. However, no major changes are expected in the tax structure of the economy.

Finance Minister Arun Jaitley will present his first budget after the Bharatiya Janata Party, led by Prime Minister Narendra Modi won the general elections 2014. Undoubtedly, all eyes will be set on Finance Minister when he presents the Budget for the year 2014-15 on July 10.

The stock market had witnessed a massive rally on 16th May following BJP's overwhelming victory. The market had also surged on hopes that BJP government would fast-track reforms and accelerate economic activity.

But, the Indian equity market ended with losses today ahead of Union Budget which is scheduled on Thursday. Traders and investors remained cautious and preferred to book profit or stay on the sidelines ahead of the mega event tomorrow.

According to various polls conducted by news-wire agencies and media, most economists expect that the budget 2014-15 would meet the expectations of economic growth. However, the government may increase its fiscal deficit target. Economists say that the mood of this budget will be different, mainly steering clear of populist measures.

The Indian industries are also hopeful that this Budget would provide some benefits. The Modi government has advocated mantras of 'minimum government, maximum governance' and 'accountability, efficiency and trust'.

Many economists expect Jaitley to cut giveaways on fuel and petroleum products to reduce India's subsidy bill. Jaitley is also expected to sell government stakes in major public companies to raise funds and bridge the gap between revenues and expenditure.

One major issue for successive Indian governments and regulators in recent years has been rising inflation, which has weakened the rupee's purchasing power as well as impacted consumer demand.

Early implementation of GST and DTC, widening the tax payer base along with steps on bringing illegal assets abroad through the tax net are the need of the hour.

The Modi government is expected to give some details on implementation of the GST. Introduction of a Direct Taxes Code (DTC) is also expected as this would widen the income tax net, boost revenues and reignite India's savings and investment rate.

The Narendra Modi Government is also considering a reduction in excise duty on diesel. However, there is no information on whether it will form a part of Arun Jaitley’s first Budget.

The government estimated the FY15 GDP growth at 5.4%-5.9%, while FY15 current account deficit may be limited to about $45bn or 2.1% of GDP, according to the Economic Survey.

Following are some expectations from the Union Budget 2014-15:

Excise duty: The auto industry is demanding continuing rationalisation of excise duty. Any positive change will benefit the industry directly. Jaitley has already extended the excise duty for a further period of six months up to December 2014. The excise duty on several categories of auto sector was reduced in February this year.

Tax exemption for special housing zones: 
Any announcement in the budget regarding tax exemption on Special Housing Zones will be a boost for the realty sector. The realty sector also expects single window clearances for fast track approval of projects. The estate sector is also hoping for the announcement of progressive new policies pertaining to FDI in real estate, because the sector is in serious need of liberalized funding flow. The Modi government had announced a very clear mandate in terms of promoting affordable housing.

MAT (minimum alternative tax): Taxation issues like MAT (minimum alternate Tax) and provision of single-window clearance for large projects are two items to watch out for in the budget. MAT is a way of making companies pay minimum amount of tax. It is applicable to all companies except those engaged in infrastructure and power sectors. Income arising from free trade zones, charitable activities, investments by venture capital companies are also excluded from the purview of MAT. However, foreign companies with income sources in India are liable under MAT. At present, MAT is charged at 18.5% per annum on total taxable income on a company. 

SEZ (special economic zone): The present tax regime takes away the benefit of sops by imposing Minimum Alternate Tax (MAT) on the income of developers of SEZ and units operating in SEZ. The abolition of MAT for both developers of SEZs and the SEZ would boost this sector. The infrastructure and real-estate industry is looking up to the new finance minister to relieve them of taxes and other challenges for continued investment in SEZ. The Government should treat infrastructure projects, particularly water, roads and power at par with SEZ projects, including the extension of exemptions and tax benefits. 

DTC (Direct Taxes Code): Both GST and DTC are long-pending tax reforms. Taxation of the super-rich has been recommended under the draft DTC which proposes a higher tax at 35% on persons earning more than Rs 10 crore a year. In the last fiscal budget, the government introduced, for a year, an additional surcharge of 10% on taxpayers with an annual income over Rs 1 crore.

GST (Goods & Services Tax): One would surely expect some clarity on GST implementation from the Budget. The Centre must implement a national GST, which, coupled with a state GST, will rationalise indirect taxes. 
GST is expected to be a critical reform in enhancing growth of the economy. When introduced, GST will not only make the tax system simpler, but will also help in increased compliance, boost tax revenues, reduce the tax outflow in the hands of the consumers and make exports competitive. 

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