1. Editorial: Servicing the fisc

Editorial: Servicing the fisc

Hiking service tax an option, not enough to fix fisc

By: | Published: December 22, 2015 1:24 AM

Given that just meeting the needs of the Seventh Pay Commission (SPC) and the One Rank One Pension (OROP) will cost finance minister Arun Jaitley over R1 lakh crore in FY17, he needs to increase his revenues beyond even what is required to increase government capex and other spending—while the OROP is said to cost R10,000 crore in a full year, SPC will cost R92,500 crore including the Jan-March 2016 arrears. And that’s when, as the mid-year review acknowledges, the economy isn’t firing on all cylinders, a pre-requisite for buoyant tax revenues. While the review notes that tax collections have been a lot more buoyant this year than in the recent past thanks to an increase in the taxable base, the finance minister needs his tax-to-GDP ratio to rise an additional 0.6 percentage points in FY17 to meet just the SPC and OROP—assuming an ambitious 12% growth in nominal GDP as compared to this year’s likely 8.2%. Such an increase in the tax-to-GDP ratio has been achieved only twice in the last decade, in FY08 and FY11—but nominal GDP rose 16.1% in FY08 and 20.2% in FY11.

One option being discussed, as Business Standard reported on Monday, is to hike the service tax rate by a couple of percentage points to 16%—this option is being discussed since the Arvind Subramanian panel has recommended a standard GST rate in the 16.9-18.9% range. Based on this year’s budgeted collections for service taxes, a 2-percentage-point hike can yield around R30,000-35,000 crore extra. And while it is true service tax collections look relatively inelastic—and so will respond positively to a rate increase—and grew by over 35% in FY12 and FY13, growth did fall to 17% in FY14 and to under 9% in FY15, before rising to 38% in H1FY16. Which means that, as the Laffer curve suggests, if the service tax rate is increased too much, the taxable base may not grow by as much as is expected—over the years, growth in service taxes has been more a factor of the increased base than it has been the hike in the rate itself. Also, with the bulk of the benefit from additional excise levies on petroleum products having accrued in FY15 and FY16—in FY16, these will add up to around R60,000-65,000 crore—the FM will be hard pressed to make ends meet since oil prices in FY17 are not going to fall by as much as they did in FY16, limiting his scope for further increases in excise levies.

Which means the government must focus on disinvestments and strategic sales—as compared to a target of R41,000 crore for the former, the government has got only R12,700 crore so far, and nothing against the strategic sale target of R28,500 crore. The government could have sold its shares in ITC, L&T and Axis Bank—housed in SUUTI—but has chosen not to and, unfortunately, these shares have lost a fair bit of value over the year. If the government is unable to realise revenues from the sales of shares in Balco and HZL this year, this must be completed in FY17, apart from selling the SUUTI shares and moving on genuine strategic sales. Significantly higher revenues are needed to ensure the government keeps up the pace of capital expenditure without exerting too much pressure on the fisc.

  1. H
    Harry Potter
    Dec 22, 2015 at 6:57 am
    L&T bres have displa geriatric trait of biting more than they can chew. Later cry foul policies, political situations etc. Hydrocarbon projects losses of 900 cr, they concede it as error of judgment, underestimating risks, aggressive bidding, and overestimating capabilities. Cost overruns in Hyderabad/Riyadh metro, 5k cr of stagnating investment in defence - they want to build ‘India’s defence capabilities’ – please do BUSINESS of profits. GoI is under no obligation to commit fixed orders. Laxmi Mittal the steel magnet have no time to cry/blame - dead busy expanding his empire from north pole to south pole, no less India lover, still holds Indian Pport, will do business in India at right time. Why L&T is asking for VGF? Do your calculations bear risk – simple. Jeff Bezos – Amazon CEO- “when asked whether doing business was easy in India, he said, ''doing business is not easy anywhere. Every country has its quirks, differences and uniqueness, companies must work around them".-------------------------------------------------------------------------------------------------------------Even self-confessed Avatar Purush like Chairman A M Naik seems to be failing to manage L&T - Mr Naik's views on succession - why Mr Naik is slogging at 73 – Quote- You find a man in the world who will kill himself four times a day, has worked for more than a hundred years-- There is no such person.-- None of us here (at senior level) are working for money -UnQuote. LnT stock touched 18 month low of 1331 (Nov 14 2015) , from all-time and 4 months peak of 1879 (July 10 2015). Lost whopping 29 percent in last 4 months. Net debt as on 30 Sep 201598 thousand crores. Would it hit 3 yr low of 722 in a quarter or two?--------------------------------------------------L&T in melting - devil or the deep blue sea - stake or post losses. Complete stake at Dhamra Port (Rs 2500 crores) to Adani group saved LnT from posting losses in q1-2014. LnT Inra stake to Canadian FII (2000 crores) saved LnT from posting losses in q2-2014. LnT Finance not made any money for shareholders in 6-7 yrs, 10% stake sold to Bains, 1300 crores. Kuttapali Port deal final with Adani. On a look out to sell Rajpura Power plant – cost 9600 crores. Plans to sell 15% stake at LnT Infotech to raise 2k crores. Threatened to pull out from Hyderabad Metro 16 k crores, LnT opts out of GAIL tender to build LNG carrier, ss Kachchigarh Gujarat port project. L&T’s commercial real estate project in Chandigarh sold to Carnival Group – Rs 1785 crores. LnT Halol Shamlaji Tollway defaults on Rs 1014 crore loan. LnT Chennai Tada Tollway defaults on Rs 475 crore loan. Inherent malignancies – Hydrocarbon and Ship Building losses of Rs 900 cr each, Hyderabad Metro cost overruns Rs 4k crores, Rs 5k crores stagnating investment in Defence. Financial mismanagement charges see a dozen leaving L&T Hydrocarbon arm. Aging CXO-MD potion of septuagenarians, leading the pack 73 yrs old Chairman Mr Naik completed 50 yrs with LnT as Paid Employee. LnT stock touched 18 month low of 1270, from high of 1879. Total consolidated debt 2014-15, 98 thousand crores. Lost whopping 20 percent in last 3 months ! Post Q2-2015 results 3 yr low of 722 ?? Another Satyam in making - L&T like Styam was barred by World Bank over FORGERY !------------------------------------------------------------------------------------------------------------------------- L&T Chairman (aged 73) Mr Naik-s brainchild, LnT Infotech is stunted juvenile. Founded as LnT-IT in late 80s, renamed to LnT Infotech in 1997 claiming to touch $1 billion in revenues since 2010 – still not there. Cognizant founded in 1997 is more than $10 billion in revenues. Sans DNA destruction of work culture and mockery of corporate governance at LnT, LnT Infotech could be what TCS is for TATAgroup companies, a great saviour for old-economy TATA companies. LnT Infotech a proven laggard, in news for failed attempt to bid for Satyam, Patni, Polaris, Hexaware, rumoured sell off to Fujitsu. Perennial entry/exit of lateral CXOs, listing gimmicks – it’s in shambles. Year 1999, Mr Naik appointed CEO of LnT group, Infosys headcount in March 2000 nearly 5k, now nearly 1.7 lakhs and LnT Infotech is nearly 20k. What policy paralysis, RBI rates etc Mr Naik wants to blame for this most dismal performance in IT space? LnT has failed to cut even 1% of IT business pie of $116 billion in India. LnT Infotech in IT space for more than quarter of a century (25 years) and not even $1 billion in revenues, headcount less than 20k! Please GOOGLE – white collar criminal equivalent of rape and murder- “Cl Action Suit Seeks $100 Million for Pregnancy Discrimination, Other Violations”. All and sundry above 60 at L&T Leave Now!!-------------------------------------------------------------------------------------------------L&T is an example of brazen disregard for merit and professionalism , a mockery of corporate governance. L&T legacy of true founders Danish engineers Mr Ln and Mr Toubro is in clutches of despotic geritocracy. Leading the pack of engineers who joined L&T in 60s is Chairman Mr Naaik. State owned LIC and UTI are biggest stakeholders, upto 10 and 17% each. Mr Naik's views on succession - why Mr Naik is slogging at 73 – QUOTE- You find a man in the world who will kill himself four times a day, has worked for more than a hundred years-- There is no such person.-- None of us here (at senior level) are working for money -UNQUOTE. Please refer ToI article – Vibrant Gujarat summit Day 1: 25 private jets bring high-flyers. Excerpts –Cabinet ministers arrived via scheduled flights -- private jet of AM Naik left immediately after arriving –. State owned LIC/UTI are biggest stakeholders at L&T, PM Mr Modi should intervene to restore insutional integrity at L&T and fix retirement age to 60. It is like BCCI a cozy club of septuagenarians, all above age of 60 should be smoked out of L&T---------------------------------------------------------------------------------------------------------------------- Please GOOGLE - L&T fraud / forgery /harment / risk / succession / default to know more about blood curdling Egyptian Mummies. Like Satyam L&T was also barred by the World Bank over forgery. PM Mr Modi should intervene to restore insutional integrity at L&T. It is like BCCI a cozy club of septuagenarians, all above age of 60 should be smoked out of L&T. All above 60 at L&T Leave Now!!
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