Lacklustre Budget

Tejinder Singh Rawal
Chartered Accountant
tsrawal@tsrawal.com

The millennium Budget presented by the Finance Minister has not made any contribution to lead the ailing economy to the road to recovery. While a tough budget was expected from the Finance Minister in a situation where the Government is facing a financial crisis in the wake of Kargil war and the Orissa mishap, the Budget has not done anything concrete to stimulate the growth process. In this phase of recovery from a worst ever recession, a reduction in tax rates would have given an impetus to the growth process and would have benefited both the exchequer and the taxpayers. Nothing has been done in this direction; on the other hand there has been a minor increase in tax rates.

While Information Technology sector is bound to benefit a lot by way of tax concessions offered to the Venture Capital firms, and easier process of acquisition of overseas corporations, the phasing out of export tax exemption has been a blow to the enthusiasm. Not surprisingly, the stock market has reacted critically to this move. Taxation of dividends at higher rate would be detrimental to the growth of effective markets. The effect is being felt by smaller investors because when the dividends was sought to be exempt from tax a couple of years back, the taxpayer could not have anticipated that while dividend tax was being withdrawn in his case, he was being led to a situation where there will in effect be a higher taxation, since the tax at 20% would now be paid by the company paying dividends, which will reduce considerably the amount of disposable income with the company.

Abolition of Interest Tax is a welcome move, as it would result in reduction in debt service charges. But reduction in the rate of interest on the Provident fund will result in hardship to the salary earners.

Finance Minister has used a fine jugglery to convince the taxpayer that he is reducing the rates of Excise, while in effect, the rates are proposed to be increased. While the SinVat is a welcome move, he has retained the existing rate of Excise Duty, by way of imposing special duty. A typical case of one hand gives and the other takes it away. Such half-hearted steps benefit none, and instead of rationalising, makes the things more complicated.

While reduction in the Customs on Computer hardware and telecom equipment would give a fillip to the sunrise industry, the conventional industry has been conveniently ignored. The million rupee question is: will the impetus provided to just one sector of the economy be sufficient to act as growth multiplier and bring the fiscal deficit down to the budget level of 5.1% from the present actual level of 5.6%. It would be interesting to note that this 5.6% actual fiscal deficit was budgeted at 4% in the last budget.

One area of great concern to the taxpayers where the Government should have given thought, and which required immediate attention, since it has reached an alarming situation, is the area of downsizing of the Government and reduction in the wasteful Government expenditure. Any move in this direction would have been welcome by the taxpayers, and would have benefited the economy, much more than the present system of bridging the gap by extracting more taxes.

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