budget and taxation policy.pptx

8/9/2019 Budget and Taxation Policy.pptx

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Budget and

Taxation PolicyRenuka Jain Gupta17.01.14


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Budget Public Expenditure :

expenses incurred by Government on various

activitiesnatural consequence o economic gro!t"

extensive# and an $intensive# increase in t"eunctions o t"e government


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%ources o incomeTax Revenues & 'ncome tax( )orporate *ax

etc

Non-Tax Revenue & +ividend collected romits s"are "olding in ,%-s ( oney collectedt"roug" allocation o natural resources/!it"inits territories e.g. %pectrum we are good at

it - pun intended2Capital Receipts & arket borro!ings(external debts( disinvestment o its ,%-s etc.


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,rocess and constitutional statusArticle 112 o )onstitution o 'ndia3

Government s"ould lay beore t"e ,arliamentan nnual 5inancial %tatement popularlyreerred to as $Budget#.

Budget preparation in 'ndia 3 an iterativeprocess bet!een t"e inistry o 5inance(

,lanning )ommission and t"e spendinginistries.


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,reparation o estimates o

expenditurepro6ecting to incur or "as incurred in past

rticle 11 & 'ndian )onstitution3 parliamentary

approval in orm o budget document.ccounting )ategories3


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J8R 9:,9;%9

1. nterest Pay!ents on Borro"ings 3'nterestpayments are a orm o committed expenditures( over!"ic" t"e government "as little discretion. %uc"expenditure oten arises as a legacy o t"e past( i.e.+ebts raised in t"e past( commit t"e government o t"eday to pay interest. Restricting interest paymentsrequires a reduction in current account de


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*rend o ,ublic 9xpenditure


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Revenue 9xpenditure


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nnual 5inancial %tatement


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What is fscal defcit? diference between total revenue and total

expenditure o the government

an indication o the total borrowings neededby the government.

Caused by either revenue decit or a majorhike in capital expenditure.


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What is revenue

defcit? A mismatch in the expected revenue and

expenditure

evenue decit arises when the government!sactual net receipts is lower than the projectedreceipts.

i the actual receipts are higher than expected

one" it is termed as revenue surplus. A revenue de*cit does not !ean actual

loss o) revenue+


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What is primary

defcit? scal decit without the #interest payments

on borrowings$ component

always less than scal decit.,o" as it been *nancing its de*cits .

?ell( by borro!ing and more borro!ing( year onyear @@


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5inances


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Budgetary Process in

ndia

$Budget %ystem# introduced in 'ndia on 7t" pril(

1A0(compre"ensive socioeconomic development

t"roug"


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8vervie!

t


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omponents n onBudget


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%tages o Budget ,rocess


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8utcome budgetto c"ange t"e culture o measuring

perormance in terms o t"e amount o moneyspent against t"e budgeted allocations

measuring perormance in terms o t"edelivery o t"e outcomes using t"e outlays


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Presentation o)

Budget

presented to Cok %ab"a in t!o parts

Rail!ay Budget 3pertaining to Rail!ay 5inance

General Budget 3 gives an overall picture o t"e


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,rocedural %teps(istribution o) Budget Papers

(iscussion on te Budget

Allot!ent o) Ti!e )or (iscussion/eneral (iscussion on te Budget

Consideration o) te (e!ands )or /rantsby (epart!entally Related #tanding

Co!!ittees o) Parlia!ent(iscussion on (e!ands )or /rants


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Cut 0otions

*"e motions to reduce t"e amounts o demandsor grants are called $)ut otions#.

%he object o a cut motion is to draw theattention o the &ouse to the matter specied

therein.)ut otions can be classi


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ote on Account

Budget process begins !it" its presentation and

ends !it" discussionvoting o demands or grants and passing o

ppropriation Bill and 5inance Bill

generally goes beyond t"e current


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%pecial )ases+uring an election year( t"e vote on account

may be taken or a longer period say( > to 4mont"s i it is anticipated t"at t"e main demandsand t"e ppropriation Bill !ill take longer t"an

t!o mont"s to be passed by t"e Fouse.

s a convention vote on account is treated as aormal matter and passed by Cok %ab"a !it"outdiscussion.

ote on account is passed by Cok %ab"a ater t"egeneral discussion on t"e Budget /General andRail!ay is over and beore t"e discussion ondemands or grants is taken up.


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*axation ,olicy


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*ripod o *axation policyArcitecture3 design o t"e tax system to be ac"ieved(

!"ic" is guided by t"e ob6ectives o tax policy.

Engineering3 t"e mec"anics to ac"ieve it( and t"ese are

provided by t"e nature o institutions and systemsinvolved in tax collection.

0anage!ent 3 t"e implementation strategy and action(

!"ic"( among ot"ers t"ings( depends on t"e politicalsupport and vision and t"e nature o administrativeagencies and t"e inormation system.


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*axation policy3 5rame!orkconstitutional assignment o tax po!ers.

t"e tax assignment is t"e adoption o t"eprinciple o separation in tax po!ers bet!een

t"e central and state governments. *"e central government "as t"e po!er to levy

t"e ma6or broad=based and mobile tax bases(!"ic" include

taxes on non=agricultural incomes and !ealt"( corporate income taxes(

customs duties(

excise duties on manuactured products.


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%tates taxation 3,o!eragricultural incomes !ealt"( sales taxes( excises

on alco"olic products( taxes on motor ve"icles

on transport o passengers and goods( stamp

duties and registration ees on transers oproperty( and taxes and duties on electricity.

to levy taxes on entertainment and on incomeearned by engaging in a proession( trade or

employmentE some states "ave retained t"esepo!ers or t"emselves( !"ile ot"ers "ave

assigned t"em to local bodies


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,rinciples o

taxation/>9seHciency /minimising distortions in resourceallocation(

equity /progressiveness o eIective tax rates

eIectiveness /o tax administrationoperational obectives3

1 'nstitution o a simple and transparent system.

Reduction o transactions costs o tax revenue

collection and compliance costs o taxpayers.> lignment o incentives o taxpayers and t"e tax

administration

4 ?idening o t"e tax base.


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Guiding principles o taxtaxes on income and !ealt"( tariIs( and taxes on

domestic consumption.

reorms in administration and enorcement o

restructuring t"e tariI structure.Based on structural ad6ustment o t"e economy(

t"e basic principles outlined are

broaden te tax base& lo"er !arginal tax

rates& reduce rate di3erentiation&si!pli)y te tax structure& and underta4e

!easures to !a4e te ad!inistration

en)orce!ent o) te tax syste! !ore

e3ective.


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*ax policy 3 8b6ective

concerns o eHciency

ob6ective o redistribution

"ig"ly progressivepersonal income tax combined !it" a "ig"

corporate income tax


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*ax policy 'dealsen"ances t"e ability o t"e tax system to raise

revenue !"ile minimiing relative price distortions.to broaden te tax base& lo"er te rates& and

reduce rate di3erentiation o bot" direct andindirect taxes.

doption ouni)or! tax rates

"as been animportant eature o practical approac"es to taxreorm.

broader base requires lo!er rates to be levied togenerate a given amount o revenues. 't also "elps to

ensure "oriontal equity( and it is desirable rom t"epolitical economy

elimination o exemptions and concessions reducesadministrative costs as !ell as t"e inKuence o

special interest groups on tax policy.


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*ax policy 3)onstraints

*"e preerence or broad=based and uniorm rates otaxation is t"us guided by t"e need to eliminate anarbitrary array o tax dierentials determinedmore by special interest group politics t"an

pursuit o economic eHciency.

limited inrastructure and capacity o taxadministrations in developing countries constraint"em rom eIectively administering complicated tax

regimes.Broad-based systems o taxation applying

uniorm rates are a mechanism or providing

stability and simplicity to the tax system.


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*ax policy in 'ndia3 )"aracteristics

an important component o


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Fistorical ,erspective1L70 3 ad "oc( dictated by t"e exigencies o bringing about a

socialistic pattern o society.

planning is selectivity and discretion bot" in designing t"estructure and in implementing t"e tax system 3led to erosion o t"etax base( created po!erul special interest groups( and introducedt"e concept o Mnegotiated settlementN into t"e tax system.

'n a closed economy( ineHciencies did not matter and relativeprice distortions and disincentives to !ork( save( and invest did not!arrant muc" consideration.

'ncome tax levels in 'ndia !ere very "ig" during 1LO0=1LA0( in1L70=71 t"ere !ere 11 tax slabs !it" "ig"est tax rate being L>.OP

including surc"arges. 'n 1L7>=74 "ig"est rate !as L7.7OP. But toreduce tax evasion tax rates !ere reduced later on( by Q1LL=L>Qmaximum tax rates !ere reduced to 40P.

Residential status& #cope o) taxable inco!e 5 Carge&,eads o) nco!e& Per!issible deductions )ro! /ross Total

nco!e


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)"anging ,aradigms"ig"ly progressive tax systems did little to reduce

inequality in developing countries as t"ey !ere

neit"er progressive nor compre"ensive.

a redistributive tax system can impose additionalcosts on t"e economy( including

administrative costs( compliance costs( economiceHciency costs( and political costs.

ocus o equity in


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%uggested Reorms,ersonal income tax reorms s"ould involve urt"er simpli


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%uggested Reorms'n particular( t"e exemption or pro


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on t"e basis o t"e diIerence bet!een t"emarginal tax rate o personal income tax and t"eeIective rate o t"e corporate tax.

*"e ot"er important issue involving t"e corporateincome tax is t"e diIerential bet!een t"e ratesapplicable to domestic and oreign companies.

,art o t"e rationale or a diIerential is involves

t"e dividend tax( !"ic" is payable by domesticcompanies alone.

*"e rationaliation o t"ese t!o aspects t"ereoreneeds to go toget"er.


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)"allengespoor tax administration "as led to lo! levels o

compliance and "ig" compliance costs.

*"e virtual absence o data on bot" direct and indirecttaxes even at t"e central level "as made it diHcult not

only to enorce t"e tax la!s but to gat"er t"eanalytical data necessary to make appropriate c"angesin t"e tax structure.

*"e complexity o t"e tax structure and t"e poor

inormation system meant t"at t"e tax system otenacquired t"e c"aracter o negotiated paymentsDasituation t"at encouraged corruption and rent seeking.


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poor state o t"e tax inormation system !assuc" t"at even as t"e coverage o *+% !asextended( t"ere !as virtually no !ay to c"eck

!"et"er t"ose deducting t"e tax at source


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Recent initiatives6utsourced t"e unction o issuing permanent account numbers3process "as acilitated t"e compiling o inormation on all taxpayers

Tax n)or!ation Net"or4 ( establis"ed by t"e ;ational %ecurities+epository Cimited( "as ocused initially on ensuring t"at *+% assessees

do in act


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tax reorm( including administrative reorms( isa continuous exercise or improving revenue

productivity( minimiing distortions ( andimproving equity.

)oordinated reorms s"ould be undertaken att"e central( state( and local levels.

ob6ective s"ould be minimiation o distortionsand compliance costs


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,olicy %ummaryBroadening t"e base o taxes andkeeping t"e *ax structures simple !it"in t"e

administrative capacity o t"e governmentsD

,"asing out various exemptions suc" as orsmall=scale industry(

inimiing exemptions and concessions toindustries in t"e services sector( and

inimiing discretion and selectivity in tax policyand administration are all important not only ort"e soundness o t"e tax system but to en"anceits acceptability and credibility.


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Mtax administration is tax policy.N

aking t"e transition to inormation=based taxadministration(

online


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*"ank ou

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