Budget 2018: Since agriculture sector of the country is under stress currently, the government needs to ensure adequate reforms are introduced to revive the sector. Even as the government is readying up to its future in 2019 elections, agriculture sector plays a pivotal role in its scheme of things, says financial consultant Chenthil R Iyer. “Agriculture sector needs the much needed attention and 52% population of the country are looking forward to reforms in this sector for the last 4 years. It would be unwise for the government to not look at this sector seriously as it is facing a crisis at the moment and can really make or break the government’s future in 2019 elections,” Chenthil R Iyer, Founder & Chief Strategist, Horus Financial Consultants Pvt. Ltd. told FE Online in an interview.
Finance Minister Arun Jaitley should also ensure that the minimum support price (MSP) offered to farmers gets linked to the actual expense incurred by him on ground in Union Budget 2018, says he. “The measures need to go beyond a mere loan waiver but should fulfil the promise made in the election manifesto of the Minimum Support Price being linked to the actual expense incurred by the farmers(in fact actual expense +50%). The technicalities can be deliberated upon, but steps should be taken in this direction instead of hiding behind the food inflation excuse,” Chenthil I Iyer says.
Q1. What are your expectations for Budget 2018? Do you see it as populist or reformist?
1) Last year, the Finance Minister Arun Jaitley started the rationalization of tax rates by reducing the lowest slab to 5%. This time I am expecting a reduction in tax rates by 5% for the 30% and 20% slab reducing both to 15% and 20%.
2) In Budget 2018, basic exemption limit may be increased to 5 lakhs, reintroduction of 10% slab for income up to 10 lakhs, 15% for income upto 15 lakhs and 25% for income above 15 lakhs
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3) Corporate taxes to be rationalised to 25% and surcharge to be abolished to ensure that there is sufficient incentive for enterprise and sufficient stimulus for growth in Union Budget 2018 following the footsteps of the United States of America.
These would nothing but be an extension of the reforms initiated last year with the rollout of GST. If the government is true to their commitment of one nation one tax, we should slowly move towards abolition of direct taxes for at least individuals as individual direct tax collection is just about 20% of the overall income of the government. The logic is simple; Since the GST burden is fully borne by the end consumer, the corporate and businesses being the producers will pay direct taxes, thus ensuring appropriate taxation of every citizen of this country. This will take some more time, but the rationalisation of taxes and the tax slabs as mentioned above will be a step in the right direction. It may appear to be populist, but will actually be reformative.
4) Working women do a commendable job taking care of the household as well as their work. They deserve some special treatment which was available a few years back but was unfortunately removed. I expect a special provision to be re-introduced, such as a standard deduction for women taxpayers so that the tax slabs remain the same for everyone and doesn’t create any confusion.
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5) Dividend Distribution Tax should be abolished as it amounts to double taxation. Hence many companies don’t distribute dividends thereby depriving investors of a regular profit distribution on their stock holdings.
6) Fuel prices have to come under GST this year and a road map for the same has to feature in this budget, else the dream of one nation one tax would remain a pipe dream.
Q2. Do you think the holding period for LTCG tax on equities will be altered in Budget 2018?
No, I don’t think this part will be tweaked any soon as the equity participation of the retail investor has not yet reached the right proportion. In fact on the contrary the abolition of Dividend Distribution Tax will be an added incentive for retirees to participate in the India growth story and receive tax free dividend income along with their taxable pension incomes.
Q3. What can be the likely surprises in Budget 2018 for the common man?
Not taking the above mentioned corrective measures will be the biggest unpleasant surprise. Just to get the Fiscal deficit target numbers right (which I believe is really far-fetched), if these measures are not taken, it will lead to a very unhappy common man and the possibility of the government getting re-elected with a convincing majority along with having the right numbers in Rajya Sabha to push further reforms will come under jeopardy.
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Four years of soft crude prices which were not passed on to the common man has done what it has to do to reducing the current account deficit and fiscal deficit numbers. Trying to get to 3.2% of the GDP is definitely an unrealistic target to reach for at the cost of the common man’s reasonable expectations as they have already paid a lot of price over the last few years due to awry implementation of Demonetization, GST and also due to not passing on the benefits of low crude prices.