Mitil Chokshi: Of hitches, riches and some good pitches in Budget 2018
Arun Jaitley & Co's pro-masses Budget has a bit of good and a touch of Robin Hood
It is a completely pro-rural and masses Budget. The ruling BJP is looking to reap the benefit of this Budget in the general elections of 2019. Jaitley has rolled out several incentives for farmers. This is very good from a socialist point of view, yet, it does raise the question till what extent can you continue to extract the juice from the elite or educated.
One example of this is the tax on Long Term Capital Gains (LTCG), though I must emphasise that is prospective. The government already has a Securities Transaction Tax that has been paid and revenue recovered from it; it was the genesis of doing away with LTCG in earlier periods.
The proposed LTCG tax does pose a few questions, though I must once again stress that it is prospective, and all gains till January 31 are grandfathered. There has been some buzz for the urban dweller about the push for infrastructure, but then, this is a pre-election Budget, and where would the growth spurt possibly be? An obvious answer is the core sector or infra and they had to allocate money here. This was certainly expected and even the stock markets had factored these in. No rocket science in predicting this one.
There is no change for the salaried class, and that is a good thing. Yet, the FM has offered the standard deduction of Rs 40,000 to this demographic. We must keep in mind though that it has done away with two allowances - transport (Rs 19,200) and medical (Rs 15,000); so, Rs 34,200 has been withdrawn. The net benefit then is Rs 5,800. I would call this a bit of tinkering, a clever way of appeasing these people who will derive some satisfaction of getting something from the Budget.
One truly good and significant move in the Budget is about how to tax certain contractual arrangements of foreign companies operating in India, either through their subsidiaries or branches. Foreign companies operating in India were retaining the contract execution or conclusion powers in the head office, not India. This resulted in their subsidiary or branch having to pay taxes on income limited to support services, which would range from 10 to 25 per cent of the total margins from operating in India.
Now, with the proposed amendments for such companies, even if the contracts are negotiated in India, irrespective of their not being executed or signed in India, they would be required to pay taxes on real profits made, instead of limited profits, which is a positive move. Doff my hat on this one, Mr Jaitley.
There was some curiosity about cryptocurrency, and the government has cleared its stand, declaring it illegal. The clarity is appreciated; one day, I think, it may be brought under the Benami Act. It is early days though. For now, all questions with reference to cryptocurrencies have been rested. Overall, the Budget was completely in line with expectations, and it does have populism at its centre.
If there was one aspect that took me aback was the harshness with which penal provisions have been introduced. For instance, a company with nil income is required to file a return and cannot delay by even a day. What the government is possibly saying is that if you are poor, become middle class, and then, elite or rich, but you are supposed to file everything on time, or we will prosecute you. This smacks as too harsh, because ultimately human beings are prone to make mistakes. Here, this group is left to the mercy of the administration; let us not forget that they too have played a huge part in building up this country.
In the end, a possible suggestion for the government is that they must learn to balance and walk on the tightrope between penalising entrepreneurs to the extent of suffocation and allowing them some constitutional freedom. This is a delicate, maybe, difficult task because there is a thin line, but there is a distinction and it must be retained. Talking about doing the balancing act, let me offset that by signing off, saying that there have been some brilliant Budget moves with reference to start-ups. Hence, for all those aspiring youths, India is the place to be.
Mitil Chokshi is a chartered accountant and senior partner at Chokshi and Chokshi, Mumbai.
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