In a gamble that draws on fiscal prudence and political pragmatism in equal measure, Finance Minister P. Chidambaram on Thursday sought to kick-start the engines of growth by providing incentives for productive investment, stepping up expenditure in social sectors to invigorate the economy in the longer term and giving a token tax break at the lowest slab rate to offset the inflationary burden on the middle class.
To provide for the various increased allocations, Mr. Chidambaram moved to tap the well-heeled by way of a one-year surcharge of 10 per cent on the ‘super rich’ section of tax payers – all 42,800 of them, that is — along with duties on imported or domestic luxury vehicles such as SUVs, mobile phones (priced over Rs. 2,000), and what has been the tax horse of most Finance Ministers —cigarettes. With other minor tinkering of duties, including TDS (tax deducted at source) on sale of property worth Rs. 50 lakh, the net additional tax revenue in the kitty works out to Rs. 18,000 crore.
However, given the challenges that he faced by way of low growth, high inflation, the widening fiscal and current account deficits coupled with lower than targeted revenue collection during 2012-13, Mr. Chidambaram may have disappointed taxpayers looking for some major breaks. But he did provide a tax break of Rs. 2,000 to individual tax payers with taxable income of up to Rs. 5 lakh. This itself is estimated to benefit 1.8 crore tax payers and work out to a revenue sacrifice of Rs. 3,600 crore. Likewise, first-time buyers of affordable homes will get an additional deduction of interest of Rs. 1 lakh for home loans up to Rs. 25 lakh, which will be over and above the current Rs. 1.5 lakh deduction allowed for self-occupied dwellings.
While doing a shade better than the targeted fiscal deficit of 5.3 per cent of GDP at 5.2 per cent for the current fiscal, Mr. Chidambaram has stuck to his target of 4.8 per cent of GDP for 2013-14, even while stepping up defence allocation by 14 per cent over the revised estimates in the current fiscal. Similar hikes have been proposed in various sectors. although it is clear that he managed to create a cushion through compression in spending during the current financial year. Expenditure under several key heads, including roads and rural housing actually fell in the current fiscal compared to the previous year.
On domestic corporates with taxable income of Rs. 10 crore, the surcharge has been raised from 5 per cent to 10 per cent, while foreign companies will pay an increased surcharge of 5 per cent instead of two per cent earlier. The Finance Minister noted that the surcharges will be in place just for a year to tide over the difficult situation although the three per cent education cess will continue to be applicable on all tax payers.
To eliminate tax evasion through under-valuation and under-reporting of property sale transactions, Mr. Chidambaram proposed a TDS of one per cent on all transfers of immovable properties for a consideration above Rs. 50 lakh, while exempting agricultural land from the levy. Alongside, while marginally reducing the Securities Transaction Tax (STT), he introduced a new Commodities Transaction Tax (CTT) on non-agricultural commodities futures, possibly to keep a trail on trading in bullion.
As for indirect taxes, the peak customs and excise duties and service tax, all remain unchanged although the import duty on high-end luxury cars, motorcycles and yachts have been raised from 75 per cent to 100 per cent and excise duty on SUVs from 27 per cent to 30 per cent. An additional excise of 18 per cent has also been levied on cigarettes, cigars, cigarillos and cheroots.
Some more, some less
Though cell phones and air-conditioned restaurant meals will cost more, some items will be cheaper too. Readymade garments, carpets and floor covering of coir and jute will cost less owing to reduction in excise duty.
As for service tax, apart from adding to more items in the negative list which will not come under tax, the Finance Minister announced a one-time amnesty scheme in which 10 lakh service tax assessees can avail of a voluntary compliance facility wherein penalty and interest will be waived for returning to the tax fold.
While the direct tax proposals will bring in Rs. 13,300 crore, those on the indirect tax side will rake in Rs. 4,700 crore during the new fiscal.
Mr. Chidambaram also raised the target from disinvestment proceeds to over Rs. 55,000 crore for the new fiscal as compared to the current fiscal's revised estimate mop-up of about Rs. 24,000 crore.
Apart from these, the budget has also proposed measures to promote household savings by raising the income limit for Rajiv Gandhi Equity Saving Scheme for first time investors raised from Rs. 10 lakh to Rs. 12 lakh and keeping the option open for such investors to three years.
Also, to wean away investments in securities like gold, the Finance Minister proposed financial instruments such as inflation-indexed bonds so as to protect personal savings from inflation.
“All flagship programmes have been fully and adequately funded. I dare say I have provided sufficient funds to each Ministries or departments consistent with the capacity to spend the funds,” Mr. Chidambaram said in his Budget speech.