The big 4’s verdict

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SummaryThe Budget reaffirms the Government’s priorities of sustaining the current economic growth and ensuring inclusive development. Fiscal consolidation and rising inflation, necessitating a review of the government spending while keeping the GDP on the high growth path are huge challenges.

Rajiv Memani

Country managing partner, Ernst & Young

Budget ’11 A Fine Balancing Act

The Budget reaffirms the Government’s priorities of sustaining the current economic growth and ensuring inclusive development. Fiscal consolidation and rising inflation, necessitating a review of the government spending while keeping the GDP on the high growth path are huge challenges. It is commendable that the FM has chosen to address the situation through greater expenditure restraint compared to enhancement of tax burden. The reaffirmation by the FM about the implementation of the Direct Taxes Code from 2012 has signaled that tax policy is gaining stability. In keeping with the thinking of phasing out the surcharge under the DTC, the lowering of the surcharge on domestic companies from 7.5% to 5% is a welcome measure, even with the base MAT rate being hiked from 18 to 18.5%. The marginal relief provided to the individual taxpayers by enhancing the exemption limit from existing R 1.6 lakhs to 1.8 lakhs is a positive move that would put some extra funds in the common man’s pocket. Budget 2011 has introduced MAT on LLPs which will restore the earlier inefficiencies. Infrastructure projects which are otherwise eligible for tax incentives shall be taxable under MAT at the rate of 20% on such incomes. The MAT provisions so introduced for LLPs provide for taxation of tax deductions / incentives claimed under normal provisions. An interesting change from the current MAT framework for companies is a different way of computing income for MAT specifically with regard to long term capital gains exempted for listed stocks. On the indirect taxes front, the FM’s conscious decision to maintain the peak excise duty rate at the current levels is laudable. Concurrently, the removal of excise exemption for 130 consumer goods by taxing them at a low rate of 1% is a sure move towards the GST rate structure, while meeting the revenue needs of the government. The effective tax rate however would be closer to 4-5%, as the manufacturers won’t be able to claim any credit for tax paid on inputs. The Budget has set the direction for many other reforms, the key to the success of these measures would lie in effective implementation.


Russell Parera

CEO, KPMG, India

Well Said… Now Let’s do Well

The reiteration of the Government to GST is welcome. The FM also did well to commit that the financial

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