The budget spells good news for corporators, the common man and investors, but they need to be slightly patient to see the results
The budget presented by Finance Minister Arun Jaitley on Saturday had something for all sections of society and stakeholders. While the industry welcomed the fact that corporate tax rate would reduce from the present 30 per cent to 25 per cent in the next four years, the fact that in the interim the surcharge was raised by two per cent is taken in stride. He had a lot in store for the capital market from where FII flows come and reflect the buoyancy of the economy. Tax pass through for instruments of Alternate Investment Funds and REIT’s (Realty funds) was accepted and will be hence forward permitted. Similarly country of residence of fund manager will not be a criteria for taxation. Tax-free bonds for infrastructure will again be issued in the year 2015-16 be it for railways, roads or ports.
EYE ON THE BUDGET: The common man needs to invest, keeping in mind medium to long term benefits. Pic/Pradeep Dhivar
Wealth tax realised a mere Rs 1,008 crore in the previous year and instead, a surcharge of two per cent has been introduced on all individuals earning Rs 1 crore and above and also on companies. This move will fetch the government over Rs 9,000 crore. GST will be introduced from April 2016 and the highest share of revenues to states, ever, at 42 per cent has been finalised. Along with grants and other payments, states would receive 62 per cent of revenues and the centre, 38 per cent.
The villain of the piece is the increase in the excise duties on tobacco, which saw ITC — a heavyweight in both the indices, be it the SENSEX or the NIFTY — get knocked out. Excise duty is up between 15-25 per cent and ITC down 8.27 per cent on the BSE at Rs 361.25. The loss of R32.55 saw the SENSEX lose a staggering 214 points on account of just ITC. While the SENSEX closed with a gain of 141.38 points or 0.48 per cent, NIFTY gained 57.25 points or 0.65 per cent to close at 8,901.85 points.
The other major sources of revenue for the centre is an increase in Service Tax from the current 12.36 per cent to 14 per cent. Certain customs duties have also been raised to provide competitive advantage for domestic manufacturers. The focus of the budget has been primarily on three things, namely ease of doing business, investment in infrastructure and make in India.
After the Delhi assembly results, many thought that the movement would return to populist measures to protect the vote bank. Mercifully, it has not done so and though the budget could have made some reforms, I am not complaining. The markets have been buoyant and running ahead of performance. FII have been very bullish and will continue to remain bullish simply because the fiscal responsibility is on track and crude oil price fall has helped India greatly. The new and revised base year has helped in comfortably meeting the fiscal deficit of 4.1 per cent which is further expected to reduce going forward to ultimately being 3 per cent of GDP. The gold monetisation scheme has been announced and so also the gold coin with the Ashok Chakra. The fine print of the same is awaited.
The common man has seen some further tax breaks for health insurance and a doubling of transport allowance from R800 per month to R1,600 per month. If one were to sum it up for three different stakeholders, namely corporates, common man and investors it would be as follows:
Corporates would welcome the anticipated cut in corporate tax to 25 per cent over four years and the introduction of GST by April 2016, while bearing the increase in surcharge instead of wealth tax with a pinch of salt. Also, service tax increase would be accepted as an intermediate step to the introduction of GST. The common man would have to pay service tax increase of 10 per cent almost everywhere and would feel the pinch while marginal relief in the case of health insurance is welcome. The markets would be joyed with tax pass through status being granted for REIT’s and AIF’s. Markets may however remain range bound till corporate results match the market optimism.
In conclusion invest for the medium to long term. Good days are ahead but be patient.
Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website http://ak57.in
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