1. Budget 2016: Coal cess hike to have adverse impact

Budget 2016: Coal cess hike to have adverse impact

The FM has put a major thrust on infrastructure, agriculture and rural economy, besides affordable housing. Total infrastructure spending on roads...

Published: March 2, 2016 12:53 AM

The FM has put a major thrust on infrastructure, agriculture and rural economy, besides affordable housing. Total infrastructure spending on roads, including rural roads, and railways is over R2.2 lakh crore. This big infrastructure building and housing construction would create demand for various products and help generate consumption across various sectors.

The emphasis on agriculture, like focused efforts on fast-tracking irrigation projects and a bid to make MGNREGA more productive, asset creating and substantially linked to agriculture and allied activities is aimed towards job and demand creation and will help improve rural economy that was reeling under two consecutive years of deficient monsoon.

The FM has also assured to give a statutory backing to Aadhaar platform to ensure benefits reach the deserving by extending it to fertiliser (earlier only to LPG). 100% FDI through Foreign Investment Promotion Board route has been allowed for marketing of food products produced and processed in India, a fillip to the food processing industry. All these are to attain the FM’s vision to double rural incomes in next five years.

Notwithstanding some tax exemptions for individuals earning up to R5 lakh, there was little to boost purchasing power of the people as individual tax exemption limits have remained unchanged. Moreover higher cess, namely Krishi Kalyan, on all taxable services and infrastructure cess on all vehicles (for which no credit will be available) will limit the money in the hands of the people, and thus spending.

Continuing with the focus on improving the ease of doing business, the FM has attempted to reduce tax litigation and addressed the issue of discretion of I-T authorities by introducing a New Dispute Resolution Scheme, where tax payers will be able to settle disputes much faster. Customs and excise duty rates on certain inputs have been rationalized, which will have beneficial effect in certain sectors. A big relief is also provided to large number of assessees in the MSME category where the turnover limit under Presumptive taxation scheme has been increased from R1 crore to R2 crore. Professionals earning up to R50 lakh have also been brought under presumptive tax.
While these efforts are laudable, doubling of coal cess to R400 per tonne will adversely impact manufacturing units and the thermal power sector. Lowering the corporate tax rate to 25% for only new companies that avail no exemptions, and bringing down the rate to 29% for those with turnover of only R5 crore, will have limited impact and not help existing manufacturing units in the
country.

The FM has envisioned keeping India on the high growth trajectory through the “nine transformative steps”, but it is also important that the expenditure earmarked in the Budget is spent in the right earnest so that the tangible benefits are visible in the near term, which would address the current concerns of low corporate profitability and subdued demand.

By Harsh Pati Singhania, VC & MD, JK Paper

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