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A Budget aimed at spending

A Budget aimed at spending
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First Published: Tue, Jul 07 2009. 12 30 AM IST
Updated: Mon, Jul 13 2009. 04 15 PM IST
New Delhi:Even as it announced an increase in government spending to a historic high of Rs10.2 trillion, thereby providing a stimulus to growth, the Budget sought to put more money in the hands of the consumers by removing a 10% surcharge on personal income tax. This effectively reduces the rate at which lax is levied by 3 percentage points across all income levels. This is expected to encourage people to spend more - another stimulus for growth.
In keeping with the overarching thrust of the Union Budget, finance minister Pranab Mukherjee’s tax proposals aim to leave people with more disposable income and stimulate industry by extending recent indirect tax cuts.
“Spending and putting money into the hands of the people have been important short-term goals of the finance minister,” finance secretary Ashok Chawla said at a media briefing on Monday afternoon.
Cuts in personal income tax are expected to put an additional Rs9,500 crore disposable income in the hands of the public, according to finance ministry officials, including revenue secretary P.V. Bhide.
“Big relief has come in the form of removal of surcharge. If you fall in the highest tax slab of 30%, the move will reduce your taxes by 3%, which is the big tax relief for individuals,” said Vikas Vasal, executive director at auditing firm KPMG.
The changes in corporate taxes such an increase in minimum alternate tax (MAT) and a simultaneous elimination of the fringe benefit tax (FBT) are revenue neutral. “Removal of FBT will lead to a loss of around Rs10,000 crore in revenue. To compensate, however, they have put 5% additional MAT on companies,” Sandeep Chhajed, an analyst at Mumbai-based stock broking firm ELARA Securities (India) Pvt. Ltd, said. MAT is a type of corporate tax levied on firms.
Other than high-profile changes such as the one to do with FBT, some of the other changes in indirect taxes aim to arrest a fall in demand.
Mukherjee, in an interview to Lok Sabha TV, said he had tried to mitigate the impact of last week’s increase in retail price of petrol and diesel by lowering excise duty on large cars.
Direct tax proposals have also been used to arrest a decline in private sector investment. New tax benefits have been introduced to incentivize firms to invest in hand-picked sectors such as cold storage.
The indirect tax proposals aim to support Indian industry by extending tax cuts made last fiscal as a part of stimulus packages, and selectively increasing tax to boost domestic industry. “No change in indirect taxes is a great move. They have maintained status quo in terms of excise duty,” KPMG’s Vasal said.
The peak rate of customs duty remained unchanged at 10%. This move was followed by changing customs duty rates in hand-picked sectors to encourage domestic manufacturers, or aid exporters. For instance, to encourage domestic manufacturers of set top boxes, customs duty exemptions on imports have been withdrawn and a 5% duty imposed.
While the Budget estimates 2009-10 show a fall of about 4% in indirect taxes to Rs2.81 trillion compared with the previous year’s revised estimates, Mukherjee adjusted classification of goods for excise duty to augment indirect tax revenue during the residual part of the current fiscal.
The Budget has raised excise duty on textile intermediates and fibres, among others, to 8% from 4% to increase revenue.
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First Published: Tue, Jul 07 2009. 12 30 AM IST
More Topics: Budget 2009 | Tax | FBT | GST | Pranab Mukherjee |