That capital gains tax on equities remained unchanged was a big relief for equity investors as was the fact that none of the existing income tax exemptions were extinguished.
THE BUDGET was presented in the backdrop of demonetisation, US election results and Fed rate hike. A fine act of jugglery was needed to boost investment growth, support small businesses and give tax sops to those at the bottom of the pyramid. All this, without deviating materially from the path of fiscal consolidation. At the end, it was a job well done. The reform push is visible at all levels. There is a definitive push to move towards a less-cash economy. Even political funding has been sought to be reformed.
The thrust on the investment economy is visible from a record R3.96 trillion spend on infrastructure, out of which R2.4 trillion is for transportation. The quality of the expenditure can be gauged from the 25.4% rise in capital expenditure when the total budget expenditure rose by about 8%. The thrust on affordable housing (grant of infrastruc- ture status and increase in project completion period from three years to five years for availing income tax benefits), the reduction in long term capital gains eligibility period for property from three years to two years and the change in base year for Cost Inflation Index from 1981 to 2001 shall ensure availability of enough capital at reasonable cost to builders and significant tax benefits for investors. This shall revive growth in a critical sector of the economy which is also among the biggest employment generators. The tax rate cut from 30% to 25% for micro, small and medium enterprises (MSMEs) with turnover of up to R50 crore is designed to help the small businessman and boost job growth.
Relief was also provided to the low and middle income individual (taxable income of R2.5-5 lakh) with the tax rate halved from 10% to 5%. This increases the disposable income in the hands of individuals by up to R12,500 per annum. Life Insurance Corporation has also been asked to design a pension plan for senior citizens at an assured return of 8% to give effect to the Prime Minister’s announcement on December 31, 2016.
In a major relief to bond investors, the fiscal deficit for FY18 has been kept at 3.2% which, coupled with net market borrowing of R3.48 trillion (R4.25 trillion in FY17) should keep bond yields low.
At times, no news is good news. The fact that capital gains tax on equities remained unchanged was a big relief for equity investors as was the fact that none of the existing income tax exemptions were extinguished. Home buyers and property investors stand to benefit the most as do borrowers, as lower interest rates are here to stay. The thrust on infrastructure and job creation means growth shall be recovering sooner than expected. The outlook for equity, debt and realty markets is hence positive, going ahead. A well-balanced Budget in our opinion.