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Budget analysis 2013
- 1. Budget Analysis 2013 Prof. Rashmi Narayanswamy
- 2. Agenda • State of the Economy 2012-13. • Direct taxes • Indirect taxes • Questions & Answers 2Prof. Rashmi Narayanswamy
- 3. State of the Indian Economy- 2012-2013. Cautious optimism for the future 3Prof. Rashmi Narayanswamy
- 4. Prof. Rashmi Narayanswamy 4 Economic performance- A snap shot of 2012-2013 • GDP expected to grow at 5% in 2012-13 as against 6.2% in the previous year making an overall economic slowdown. • CAD to GDP ratio reached an all time high of 5.4% in second quarter of 2012-13 raising concerns of trade balance • Budgeted target for fiscal deficit revised up from 5.1% of GDP to 5.3% due to unplanned expenditure and low tax revenue • Investments and savings both have reduced in 2012- 13 due to high inflation and low investible surplus in the economy • Rupee depreciated significantly putting pressure on imports
- 5. Prof. Rashmi Narayanswamy 5 Economic performance- A snap shot of 2012-2013 • Inflation moderated in Jan 2013 as wholesale price index recorded a three year low at 6.6% • Stock markets recovered with Sensex crossing the 20,000 mark showing investor confidence in the market • Foreign investments recovered post reforms with FIIs crossing US$ 10 bn. in third quarter of 2012-13.
- 6. Prof. Rashmi Narayanswamy 6 Real Sector – has the economy bottomed out? Gross Domestic Product • Consistent downfall in growth for last couple of years, continuing till first half 2012-13. • GDP growth for 2012-13 expected to remain low at 5.2% • 2013-14 may see revival with growth around 6.1 to 6.7% depending on – - successful implementation of recently announced economic reforms - improved global demand with early signs of optimism in the US & Europe. How did India go from 9% to 5%? Recent slowdown attributable to poor performance of agricultural and manufacturing sectors , deteriorating global prospects, policy impediments and effect of
- 7. Prof. Rashmi Narayanswamy 7 The Twin Deficits - the Current account and Fiscal Deficits need attention Current Account Deficit (CAD) • Current account deficit reached a high of 4.2% of GDP in 2011-12 which further worsened to 4.6% in 2012-13 and currently at 5.4% in Q2 2012-13. • The year is likely to close as the new all time high • Main contributor “Trade Deficit” has widened in light of slump in export demand. High oil prices resulting in inelastic imports Fiscal Deficit • The Government revised fiscal deficit target for 2012-13 from initial target of 5.1% to 5.3%. • Fiscal consolidation plan targets curtailing subsidy bill, increasing investment, tax revenue and disinvestments • Growing fiscal deficits has led to increase in market borrowings by the Govt., crowding out private investments.
- 8. Prof. Rashmi Narayanswamy 8 DIRECT TAXES
- 9. Highlights/ Key Headlines • GARR- Announcements made by the Finance Minister in Jan 2013, partially incorporated in the legislation • No change in Corporate or Personal tax rates • Surcharge increased from 5% to 10% in many cases • Tax on Royalty and fees for technical services to non-residents increased from 10 % to 25 %. Prof. Rashmi Narayanswamy 9
- 10. Highlights/ Key Headlines • Pass through status granted to certain Alternative Investment Funds • Profit distribution by unlisted companies through buy back now taxable • Concessional tax rate for foreign dividends to continue for one more year • Introduction of with-holding tax on specified transactions of immovable property Prof. Rashmi Narayanswamy 10
- 11. General Anti Avoidance Rule • GAAR to come into force w.e.f. F.Y. April 1, 2015. • An arrangement, the main purpose of which is to obtain a tax benefit, would be considered as an impermissible avoidance arrangement • Constitution of Approving panel modified • Directions issued by the Approving panel to be binding on the tax payer as well as the Income-tax authorities Prof. Rashmi Narayanswamy 11
- 12. Impact on Corporate taxation- Non- residents • No change in Corporate tax rate • Surcharge increased from 2 % to 5 %, where taxable income exceeds Rs 10 crores • Rate of tax on Royalty and fees for technical services increased from 10% to 25% • Tax Residency Certificate necessary but not sufficient for claiming treaty benefits Prof. Rashmi Narayanswamy 12
- 13. Impact on Corporate taxation- Residents • No change in Corporate Tax rate • Surcharge increased from 5 % to 10% where taxable income increases Rs 10 crores • Investment Allowance of 15% introduced • Tax holiday for Power sector extended by one more year for commencement of operations. Prof. Rashmi Narayanswamy 13
- 14. Impact on Corporate taxation- Residents • Provisions of Sec 50 C now extended to land & building held as stock in trade • Securities transaction tax reduced • Commodities transaction tax introduced • Special provisions for taxation of dividends from certain foreign companies extended by one more year Prof. Rashmi Narayanswamy 14
- 15. Impact on Personal taxation • Withholding tax introduced on transfer of certain immovable properties (@ 1%) • RGESS expanded – benefit now available for investment in listed units of equity oriented funds • Threshold for gross income for eligibility increased from Rs 10 lacs to Rs 12 lacs Prof. Rashmi Narayanswamy 15
- 16. Key policy announcements – Capital Markets • SEBI to simplify procedure and entry norms for foreign portfolio investors and also make investment in India easier for foreign investors • FIIs permitted to participate in exchange traded currency derivatives • Stock exchanges allowed to use dedicated debt segments Prof. Rashmi Narayanswamy 16
- 17. Key policy announcements - Others • Scope of annual information returns to be expanded • Circular covering issues relating to development centers to be issued shortly • Safe harbor- provisions issued via Finance Act, 2009. Prof. Rashmi Narayanswamy 17
- 18. Prof. Rashmi Narayanswamy 18 INDIRECT TAX
- 19. Summary - Indirect tax • Peak rate of Customs duty, Excise duty and Service tax remain unchanged • Exemptions in relation to certain services curtailed • Voluntary Compliance Encouragement scheme introduced under Service tax • Advance ruling broad based Prof. Rashmi Narayanswamy 19
- 20. Customs • No change in peak rate of customs duty of 10% on non-agricultural products • Increase in Basic Customs Duty on: - Raw silk from 5 % to 15 % - Set top boxes from 5 % to 10% • Reduction in Basic Customs duty on: - pre forms of precious and semi-precious stones from 10% to 2% Prof. Rashmi Narayanswamy 20
- 21. Excise Duty • No change in peak rate of Excise duty (12 %) • Excise duty increase up to 18% on cigarettes; marbles and tiles up from Rs 30 sq. m to Rs 60 sq m • Branded Ayurvedic medicaments and of Unani, Homeopathy and Bio-chemic system changeable to Excise duty on Retail Sales price with an abatement of 35%. Prof. Rashmi Narayanswamy 21
- 22. Service Tax • No change in rate of Service tax – maintained at 12% • Scope of negative list expanded to include- - Vocational courses offered by institutes affiliated to the State Council for Vocational Training - testing activities in relation to the agricultural produce Prof. Rashmi Narayanswamy 22
- 23. Service Tax • Rate of abatement reduced from 75% to 70% in case of high end constructions where the component of service is higher in following cases: - Residential units with carpet area of 2,000 sq ft or more; - or value of residential unit is Rs 1 crore or more. Prof. Rashmi Narayanswamy 23
- 24. Central Sales Tax/ Goods & Service tax • Concessional rate of CST retained at 2% • Compensation of Rs 9,000 crores earmarked for States on account of reduction in rate / phase out of CST • Bills/ drafts to be placed before Parliament in next few months - Constitutional amendment Bill - Model GST legislation Prof. Rashmi Narayanswamy 24
- 25. General impact on Business • Status quo on rates will boost the industry sentiments and encourage long term planning in a stable tax regime • Voluntary compliance scheme under Service Tax will encourage compliance and broaden the tax base • Pace on activity on introduction of Goods & Services tax expected to increase Prof. Rashmi Narayanswamy 25
Notas do Editor
- Experts described Finance minister P. Chidambaram’s budget responsible, one that may not have impressed the markets but did not draw any angry reactions in the House. The efforts to address fiscal deficit and current account deficit were widely welcomed by panelists. According to the renowned economist, Swaminathan Anklesaria Aiyer, Mr. Chidambaram has just presented a budget which can be described as solid, sound and credible. Not a spectacular one, no fireworks, not an election budget in the sense of populist giveaways, but yes, a subtle election budget – to bring inflation down, stimulate growth, make sure that foreign investment comes in and keeps the rupee strong so that the current account deficit is fixed. According to Uday Kotak, Vice Chairman, Kotak Mahindra bank; it is a responsible and a realistic budget. Our honorable Finance Minister started his speech with “our goal is higher growth leading to inclusive and sustainable development. That is the mool mantra.” The purpose of the Budget and the job of a Finance Minister is to create the economic space and find the resources to achieve the socio economic objectives.
- Global economic growth slowed down from 3.9% in 2011 to 3.2% in 2012. India is part of global economy: our exports and imports amount to 43% of GDP and two-way external sector transactions have risen to 108% of GDP. We are not unaffected by what happens in the rest of the world and our economy too has slowed down after 2010-11. In the current year RBI has estimated growth at 5.5%. However, this is below India’s potential growth rate of 8%. Even now, of the large countries of the world, only China and Indonesia are growing faster than India in 2012-13. And in 2013-14, if we grow at the rate projected by many forecasters, only China will grow faster than India. The purpose of a Budget – and the job of the Finance Minister- is to create the economic space and find the resources to achieve the socio- economic objectives. At present, the economic space is constrained because of a high fiscal deficit; reliance on foreign inflows to finance the current account deficit; lower savings and lower investment; a tight monetary policy to contain inflation; and strong external headwinds.
- The greatest worry is the Current account deficit (CAD). The CAD continues to be high mainly because of our excessive dependence on oil imports, the high volume of coal imports, our passion for gold and the slow down in exports. This year, and perhaps the next year too, we have to find over $ 75 billion to finance CAD. There are only three ways before us- FDI, FII or External Commercial Borrowings (ECB). However, development has to be sustainable- economically and ecologically. Looming large over our efforts to stimulate growth is inflation. Some inflation is imported- supply demand mismatch in oilseeds and pulses are pushes up inflation. Aggregate demand is another cause of inflation. The battle against inflation must be fought on all fronts. Our core inflation has been brought down to 4.2% with our sustained efforts. It is the food inflation that is worrying, and we shall take all steps to augment the supply side to meet the growing demand for food items.
- The Economic survey, which primarily gives a snapshot of the country’s economic situation and lists out the vulnerabilities and challenges that could emerge as India negotiates a high- growth. The Survey highlights the twin deficits – current account and fiscal – as key areas of risk in the near term, especially since the current account deficit (CAD) widened to 4.6% of GDP in the first half of FY 2013. The Economic survey 2012-13 is lucid, well-argued and short of new big ideas. The Survey makes three pronouncements that would be welcomed by industry: It is imperative to cut the fiscal deficit. It should be done by raising the tax/ GDP ratio instead of curtailing expenditure. Tax collections should be increased by broadening the tax base rather than by raising marginal rates of tax. Savings have to go up. This is the way to cut the worrying current account deficit. The survey has to say the following: Fix the fiscal- the government will not breach the fiscal deficit target of 5.3% of GDP despite shortfall in revenues in the current fiscal. It should not deter from the path of fiscal consolidation, which is critical not just to sustain higher growth rate and lower inflation but also ease financing of widening current account deficit. Open doors to FDI – for safe financing of widened current account deficit. Remove curbs and regulatory bottlenecks in the current services in order to boost the growth of the sector. Curb oil and gold imports as room to increase exports limited. Widen tax base- exchange tax – GDP ratio by broadening the base rather than increasing marginal tax rates significantly. Limit tax exemptions to realize the fuller tax potential through a wider tax base.
- Investment allowance benefit of 15 % introduced for high value investments by manufacturing companies. Tax holiday for power sector extended by one year for commencement of operations.
- New Direct Tax Code Bill to be tabled before the end of the budget session.
- A ruling by the authority for Advance rulings on whether an arrangement is an impermissible avoidance arrangement made available Criteria for deeming an arrangement to lack commercial substance expanded Some of the key announcements not incorporated in the legislation.
- Concessional tax rate of 5% on certain foreign currency borrowings extended to specified borrowings converted in Indian rupees utilized to subscribe specified bonds.
- Investment allowance applicable to company tax payers engaged in the business of manufacture of an article or thing. Investment to be made of more than Rs 100 crores in new plant & machinery Investment to be made between 1’st of April 2013 to 31’st March 2015. Benefit available for AY 2014-15 and 2015-16.
- RGESS benefit available for three consecutive assessment years. Rajeev Gandhi Equity savings scheme. The budget has sweetened the deal for the first time stock investor who wants to avail of tax benefit under RGESS. Not only has the scheme has benefit extended to three years but the eligibility criteria has been tweaked to include taxpayers with an income of up to Rs 12 lakh. Earlier the scheme was open only to those with an income of Rs 10 lakh a year and for just one year.
- Investment as FII vs. FDI clarified. SEBI to prescribe requirements for Angel investors to be recognized as Category I – AIF Venture Capital funds. List of eligible securities in which Pension funds and Provident funds may invest to beenlarged.
- Imported luxury goods – Sports utility vehicles (75% to 100%); New Motor cycles- (60 to 75%); Yatches (10% to 25%) increase in basic customs duty Reduction in basic customs duty- specified leather, footwear, machinery items and parts thereof from 7.5% to 5% Levy of export duty on Bauxite and unprocessed lemonite (10%) Equalization of rate on steam coal and Bituminous coal Various concessions extended to aircraft industries
- 1.Restoration of zero Excise duty on ready made garments and made ups with continuation of facility with CENVAT. 2. Duty raised from 1 % to 6% on mobile handsets having retail sale price more than Rs 2,000. 3. Relief of Excise duty to Shipping industry 4. Exemption to goods manufactured and captively consumed in manufacture of final products for which area based exemption is claimed.
- 1.Process amounting to manufacture or production of goods to include processes under the Medicinal and Toilet preparations (Excise Duty) Act, 1955. 2. Exemption to auxiliary educational services and renting of immovable property services provided by Educational institutes withdrawn. 3. Exemption from service tax on copyright of cinematography limited to films exhibited in cinema halls 4. All air-conditioned restaurants brought under service tax net. 5. Exemption to services by way of vehicle parking to general public rescinded 6. Exemption for repair or maintenance of government aircrafts withdrawn.
- 1. Voluntary compliance encouragement scheme introduced: - Service taxes dues from 1’st October 2007 to be paid voluntarily - Waiver of interest or penalty/ other proceedings on such disclosures - Payments may be made on installments 2. Scheme not available to person against whom enquiry/ investigation is pending. 3. Exemption to auxiliary educational services and renting of immovable property services provided by educational institutes withdrawn. 4. Exemption from service tax on copyright of cinematography limited to films exhibited in cinema halls. 5. All air-conditioned restaurants brought under service tax net. 6. Exemption from services by way of vehicle parking to general public rescinded. 7. Exemption for repair or maintenance of government aircrafts withdrawn. 8. Voluntary compliance scheme introduced – service tax dues from Oct 1, 2007 to be paid voluntarily. Waiver of interest/ penalty/ proceedings on such disclosure. Payments may be made in installments. 9. Scheme not available to person against whom enquiry / investigation is pending. 9.
- Endorsement of the new service tax regime based on negative list evident in the minimal changes that have been necessitated . Impetus to provisions imparting greater clarity in tax laws, such as advance ruling.