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Analysis: Not a people’s Budget

Analysis: Not a people’s Budget
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First Published: Thu, Mar 01 2007. 12 01 AM IST
Updated: Thu, Mar 01 2007. 12 01 AM IST
Expectations sparked during the run-up to the Union Budget, have largely been belied. While no one may have expected the government to lower the basic tax rates, there was widespread expectation that there would be some favourable change with respect to the surcharge on income tax or by way of removing the education cess. The only changes that have been initiated are doing away with the surcharge for Small and Medium Enterprises having taxable income of Rs1 crore. Instead, the finance minister has actually hiked the effective income tax rates by raising education cess by 1%.
At the same time, the raising of income tax exemption has been far below expectations. Everyone had expected the ceiling to be raised substantially. Instead, the minister has only raised it by Rs 10,0000.
Further, the government has added to the tax burden of a host of software companies by extending the provisions of the Minimum Alternative Tax to companies claiming exemptions under Section 10A and 10B of the Income Tax Act (tax holidays for units in Software Technology Parks and Export Oriented Units).
By raising the dividend distribution tax to 15%, the finance minister may end up discouraging companies from declaring dividend. This step comes as a surprise when industry was expecting extended sops instead of growing tax net.
Similarly, by bringing Employees Stock Option within the purview of the tax regime, the finance minister has actually made employers to give second thought while offering the ESOPs to its employees.
And surprisingly the finance minister has taken measures that would impact investment in infrastructure projects as well. All he has done is the the withdrawal of the tax benefits under 80 I(A) of the Income Tax Act -- which allowed a 10-year tax holiday -- for those companies which would undergo a change in ownership. In other words, the move discourages entry and exit of promoters from infrastructure projects.
At a time when the government expects people to come forward to help in the overall growth of the country, it is safe to say that this is not a people’s budget as the finance minister claimed in Parliament.
Divya Baweja is a partner, while Abhinav Jain is a senior associate at BMR & Associates
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First Published: Thu, Mar 01 2007. 12 01 AM IST
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