T N C Rajagopalan:Budget exercise at this juncture

The Supreme Court and Election Commission have cleared the way for presentation of the Union Budget on the coming Wednesday. The major interest would be how the finance minister copes with the aftermath of demonetisation and paves the way for smooth transition to the Goods and Services Tax (GST) regime. 

The operating results of companies reported till now for the October-December quarter show a clear decline in growth of revenue and profit, across various sectors. Credit growth has slumped significantly. Remonetisation is slowly easing the liquidity crunch but the full impact of demonetisation is not clear. It is difficult to say whether the economic slowdown will last for one quarter or more. The stock markets are hopeful that the Budget will stimulate domestic consumption, through lower taxes, increased spending in infrastructure, housing and social sectors, and higher deductions for housing loans under income tax laws.  

The prime minister (PM) had already announced a series of steps to ease the pain of farmers, women and senior citizens. It would be interesting to see how far the finance minister (FM) goes in giving more relief to those adversely hit, especially small scale businesses in the informal sector.  The apprehension is that populism will take precedence over fiscal prudence.   

The stated objectives of demonetisation have not been attained. The PM had said this was is only the first step in a fight against corruption and undisclosed money. He has also talked of making players in the stock markets pay more tax. So, it will be interesting to see if the government withdraws the much abused Mauritius route for investments in stock markets, abolishes participatory notes and makes any change in the tax exemptions on capital gains. 

Export growth has remained positive from September onwards. The prospects of better growth in developed countries augur well for it. However, uncertainties have grown, with calls for protectionism gaining ground in America and Europe. The FM can help exporters by simplifying the process for sanction of refunds. 

On the import side, most of the exemptions, other than those for privileged persons, for export promotion and giving effect to trade treaties can be phased out. Customs procedures have been streamlined significantly with implementation of a single-window interface for most import and some export. The process must be carried forward. 

Excise and service tax laws will give way to GST in a few months. So, there might be no case to fiddle with the existing provisions at this stage. Item-wise GST rates are to be decided by the GST Council but  excise duty and service tax rates can be moved towards the standard rates expected by the finance ministry in the GST regime. Since the maximum retail price-based levy of excise duty and the compounded levy scheme have no place under a GST regime, it is better to abolish these now and let assessees get used to a transaction value-based levy. 

The FM should also have all the rules and  notifications proposed under the GST regime put on the web. This will enable the assessees to be ready when the GST regime gets implemented on July 1.

E-mail: tncrajagopalan@gmail.com