A balancing act

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FM likely to present budget for 'aam aadmi'

: In the run-up to the budget, several concerns were expressed around the compulsions of an election-year and how these would play out for the corporate world. The government has lived up to its expectation of delivering a populist agenda, with an emphasis on instant gratification of its largest voter banks. I am sure all of us have the deepest sympathy for poor farmers, but the loan waiver sets a dangerous precedent. Yet, despite the forthcoming elections dominating the budget agenda, the impact on corporate India or individuals is not negative and the FM has in fact, launched several proposals to stimulate demand.

For corporate India, the FM has chosen to continue with the existing tax rates and surcharge. The much demanded change in the provisions of the dividend distribution tax (DDT) to nullify the cascading effect of multiple levy of DDT in a holding subsidiary scenario has been partly addressed by providing for relief at the first tier.

The extension of tax holiday to hospitals is another measure to boost healthcare. The provision for extending weighted deduction for outsourced R&D spend was a demand from pharma companies.

The proposal to withdraw BCTT from April 2009 is welcome step.

The capital markets would be bemoaning the increase in the STCG tax rate from 10% to 15% on the pretext of ensuring long term commitment by investors, especially FII’s. Commodities Transaction Tax (CTT) on same lines as STT has been introduced. A deduction from business income in respect of STT and CTT has been provided instead of a rebate currently allowed against the tax liability, thereby increasing the overall tax incidence. Exemption from TDS on corporate debt instruments issued in demat form and measures to expand the market for corporate bonds should help in establishing the bond market. However, the notable sectors, which seemed to have missed out are infrastructure and exporters.

Reduction is excise duty across the board should increase consumption, reduce inflation and promote manufacturing. Service tax scope has been further widened to include new services such as IT software services, asset management under ULIP, services provided by stock/commodities exchanges, services of goods supply without transferring rights therein, Internet telecommunication services and clearing houses. But legal services remain outside the ambit of the service tax law.