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He, thus, gave some relief to the middle class and, at the same time, levied more tax on the rich. Over 18 million taxpayers with annual income between Rs 2 lakh and Rs 5 lakh were given tax credits of Rs 2,000 each, even as an estimated 42,800 super-rich individuals — those with over Rs 1 crore of taxable income — would now be made to pay a one-year surcharge of ten per cent on their existing tax level, fetching the government an extra Rs 4,400 crore next year.
In addition, sports utility vehicles for private use, often considered a symbol of luxury, have been slapped with a higher excise duty of 30 per cent, up from 27 per cent earlier. And the Customs duty on high-end motor vehicles, motorcycles and yachts has been raised steeply to 100 per cent, 75 per cent and 25 per cent, respectively. Even on mobile phones priced higher than Rs 2,000, the excise duty has been raised from one per cent to six per cent. (Click here for graphic)
Also, the finance minister announced an amnesty scheme for more than one million registered service tax assessees who had stopped filing returns. They could now pay up their dues since October 2007 without any interest and penalty, a move that would contribute to the 36 per cent growth in service tax collections projected for next year.
Chidambaram, however, did not compromise on fiscal consolidation. He kept the current year’s fiscal deficit at 5.2 per cent of gross domestic product (GDP), a tad higher than the Budget estimate of 5.1 per cent, largely through a savage cut of 18 per cent in Plan expenditure, and projected a fiscal deficit of 4.8 per cent of GDP for next year.
Multimedia | T N Ninan, Chairman, Business Standard, decodes the Budget 2013-14
His fiscal consolidation plan for next year relied on his projections of 19 per cent growth in tax revenues, even higher growth of 32 per cent in non-tax revenues (dividends and telecom spectrum auction proceeds included) and a similar rise in disinvestment proceeds, even though his current year’s performance on this front is short of its target. Next year’s revenue projections are largely based on his estimate that the economy would register nominal growth of 13.4 per cent in 2013-14.
Also read: BUDGET AT A GLANCE
Both direct and indirect tax rates remained by and large unchanged (no change in the basic rates for the different income-tax slabs, peak duty of 10 per cent for Customs and 12 per cent each on excise and services). However, additional resource mobilisation through the levy of surcharges on income and corporation tax, changes in excise duty on some items and a widening of the service tax coverage was expected to be Rs 18,000 crore — Rs 13,300 crore through direct taxes and Rs 4,700 crore indirect taxes.
On the expenditure side, Chidambaram allowed a 16 per cent increase in the government’s total outlay to Rs 16.66 lakh crore over the reduced revised estimate of Rs 14.31 lakh crore for the current year. But he proposed to cut subsidies by almost 10 per cent next year, largely through a reduced outgo on petroleum products.
The finance minister made sure all the flagship schemes for social sector development were fully funded with the Plan expenditure next year, going up to Rs 5.5 lakh crore, or 29 per cent more than the current year’s revised estimate. An additional provision of Rs 10,000 crore, over and above the existing food subsidy bill, was made to fund the food security law, which Chidambaram hoped Parliament would pass during the year.
The stock market, however, was unimpressed with the Budget. The BSE benchmark Sensex went down by 291 points to close the day at 18,861. This could be because of the doubling of the surcharge on companies with annual taxable income of more than Rs 10 crore to 10 per cent (fetching an extra Rs 15,000 crore next year), the introduction of commodities transaction tax for all exchange-based futures trading of non-agricultural commodities, a levy of one per cent tax deduction at source on capital gains from all transfer of real estate valued over Rs 50 lakh, and the Budget’s clarification that both the conditions of residency and direct beneficiary certification would be needed for tax benefits under the double taxation avoidance agreement.
The stock market also seemed to have ignored a host of measures Chidambaram announced to ease the regulatory clearance norms for foreign institutional investors, relaxation in norms for investment in equities through the Rajiv Gandhi Equity Savings Scheme, a reduction in the securities transaction tax and steps to attract more investments in the housing sector with a tax incentive for first-time house buyers.
The market ignored even a key Budget initiative for investment revival by providing an investment allowance of 15 per cent for companies investing more than Rs 100 crore in plant and machinery during 2013-15. The Budget, the last to be presented by the United Progressive Alliance government before the elections due in 2014, also provided assurance to Parliament that the government was committed to introducing the Goods and Services Tax as soon as the Constitution Amendment Bill in this respect was cleared by the two Houses. There was also a proposal to set up a tax administration review apparatus to clean up the tax system and bring it up to date with regard to sectors such as the information technology and development centres. The baggage rules for individuals were also relaxed and there was an assurance that a new direct taxes code to replace the Income-Tax Act of 1961 would soon be in place.
