fiscal budget and tax policy

8/7/2019 fiscal budget and tax policy

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Annie Patton Annie Patton

Fiscal Budget and TaxFiscal Budget and Tax

Policy 2010Policy 2010


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Indian Taxation SystemIndian Taxation System

Indian Tax System is characterizedIndian Tax System is characterized

by:by:

A High Dependence on Indirect Taxes.A High Dependence on Indirect Taxes.

Low Average Effective Tax Rates & TaxLow Average Effective Tax Rates & Tax

Productivity.Productivity.

large Taxlarge Taxinduced Distortions oninduced Distortions on

Investments & Financing Decisions.Investments & Financing Decisions.


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Income TaxIncome Tax

Income Tax is a Tax on the IncIncome Tax is a Tax on the Inc

of an Individual or an Entity.of an Individual or an Entity.

Introduced in India in the year Introduced in India in the year

1860.1860.

Discontinued in the year 1873. Discontinued in the year 1873. Reintroduced in the year 1886 Reintroduced in the year 1886


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Personal Income TaxPersonal Income Tax

IIncomes from all the Sources are added.ncomes from all the Sources are added.

Certain Rebates, Deductions, Expenditure Certain Rebates, Deductions, Expenditure

etc., on account of Life Insurance, Medietc., on account of Life Insurance, Medi

Insurance, Savings in PPF, etc. are allowed.Insurance, Savings in PPF, etc. are allowed.

Whole Income is divided into Different Slabs Whole Income is divided into Different Slabs

and Taxed on the basis of Slab intoand Taxed on the basis of Slab into

it Falls.it Falls.

Progressive Income Taxation i.e., asProgressive Income Taxation i.e., as

Income Increases, the Rate of Tax alsoIncome Increases, the Rate of Tax also

Increases.Increases.


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Corporate Income TaxationCorporate Income Taxation

Rationale for the Corporation Tax is thaRationale for the Corporation Tax is tha

Joint Stock Company has a Separate Joint Stock Company has a Separate

& thus should be Taxed separately.& thus should be Taxed separately. Until 1960 Until 196061, Corporations were Taxed in a61, Corporations were Taxed in a

Partial sense.Partial sense.

A Corporation was required to Pay In A Corporation was required to Pay InTax on behalf of Shareholders on DividendsTax on behalf of Shareholders on Dividends

paid to them, & each Shareholder gotpaid to them, & each Shareholder got

Credit to this effectCredit to this effect


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Corporate TaxCorporate Tax

Since 1960Since 196061, Corporations are being61, Corporations are being

treated as Independent Entities &treated as Independent Entities &

Shareholders are not given any Credit.Shareholders are not given any Credit. Corporations are Taxed at a Flat Rate Corporations are Taxed at a Flat Rate

certain Rebates & Exemptions are alsocertain Rebates & Exemptions are also

provided.provided. Tax Rates are different for Indian Tax Rates are different for Indian

Companies & Foreign CompaniesCompanies & Foreign Companies


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Taxes on WealthTaxes on Wealth Estate DutyEstate Duty

Taxes which are levied on Wealth &Taxes which are levied on Wealth &

Capital are mainly Estate Duty, Annual TCapital are mainly Estate Duty, Annual T

on Wealth & Gift Tax.on Wealth & Gift Tax.

Estate Duty was First Introduced in the year Estate Duty was First Introduced in the year

1953.1953.

Estate Duty is levied on the Total Pr Estate Duty is levied on the Total Pr

passing to the heirs on the Death of passing to the heirs on the Death of

Person.Person.

Estate Duty was abolished in the year 1985 Estate Duty was abolished in the year 1985


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Annual Tax on WealthAnnual Tax on Wealth Annual Tax on Wealth was introduced in 1957.Annual Tax on Wealth was introduced in 1957.

Annual Tax was levied on the Wealth Annual Tax was levied on the Wealthas Land, Bonds, Shares, etc. of the People.as Land, Bonds, Shares, etc. of the People.

Certain Types of Properties such as Certain Types of Properties such as

Agricultural Land & funds in ProvidentAgricultural Land & funds in Provident

Account were exempt.Account were exempt.

Wealth Tax was abolished in 1993 on Wealth Tax was abolished in 1993 on

assets except certain specified assets such asassets except certain specified assets such as

Resident Houses, Farm Houses, UrbanResident Houses, Farm Houses, UrbanLand, Jewellery, Bullion, Motor Car, etc.Land, Jewellery, Bullion, Motor Car, etc.


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Custom DutiesCustom Duties

Custom Duties are levied on Exports &

Imports. Import Duties are levied on the bas

ad valorem.

In Pre

Tax Reform Period, India hadbecome a country with one of the

highest levels ofCustom Tariffs in the

World. Since 1991, theCustom Duty

Structure was pruned. Maximum Rate ofCustom Duty is 10% now


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Excise DutiesExcise Duties Value Added is the differenceValue Added is the difference

between a Firms Revenues & itsbetween a Firms Revenues & itsPayments to other Firms i.e., it is thePayments to other Firms i.e., it is the

Value Difference between Sales &Value Difference between Sales &

Purchased Items.Purchased Items. Under MODVAT, a Manufacturer ca Under MODVAT, a Manufacturer ca

take Credit of Excise Duty paid ontake Credit of Excise Duty paid on

Raw Materials and Components used byRaw Materials and Components used byhim in his Manufacture.him in his Manufacture.


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Excise DutiesExcise Duties

Since it amounts to Excise Duty Since it amounts to Excise Duty on Additions in Value by eachon Additions in Value by eachManufacturer at each stage, it is calledManufacturer at each stage, it is called

ValueValue

AddedAdded

Tax (VAT).Tax (VAT). MODVAT differs from VAT. MODVAT differs from VAT.

VAT covers the entire value of I VAT covers the entire value of I

where as under MODVAT Duty paidwhere as under MODVAT Duty paidInputs only.Inputs only.


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Service TaxService Tax Service Tax is a form of IndirecService Tax is a form of Indirec

imposed on Specified Services calledimposed on Specified Services calledTaxable Services.Taxable Services.

It was introduced in the year 19 It was introduced in the year 19

95.95. Service Tax Network has expanded to Service Tax Network has expanded to

cover many Services over the Yearscover many Services over the Years


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Value Added Tax (VAT)Value Added Tax (VAT)

VAT is a multistage Sales Tax with VAT is a multistage Sales Tax with

for Taxes paid on Business purchases.for Taxes paid on Business purchases. VAT is non VAT is noncascading.cascading.

Tax is levied on Value Addition at e Tax is levied on Value Addition at e

stage of Transaction stage of Transaction Production/Distribution Chain.Production/Distribution Chain.

VAT was introduced in 1999 & was VAT was introduced in 1999 & was

Implemented in April, 2005 in some States.Implemented in April, 2005 in some States.


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Features of Tax Structure in IndiaFeatures of Tax Structure in India

Tax Revenues (on account of the CeTax Revenues (on account of the Ce

State & Union Territories) form about 1State & Union Territories) form about 1the Total National Income of India (2009the Total National Income of India (2009--10).10).

Among the Third World Countries, India Among the Third World Countries, India

one of the Highest Taxed Countries. Reasonsone of the Highest Taxed Countries. Reasons

Being:Being: Spectacular Rise in Expenditure onSpectacular Rise in Expenditure on

Defense & Other NonDefense & Other NonDevelopmentalDevelopmental

activities.activities. Increase in Expenditure on DevelopmentIncrease in Expenditure on Development

Planning.Planning.

Violation of the Canon of Economy.Violation of the Canon of Economy.


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Features of Tax Structure in IndiaFeatures of Tax Structure in India

Tax Revenue collected by the Central Tax Revenue collected by the Central

State Governments has increased fromState Governments has increased fromRs.460 cror in 1951Rs.460 cror in 195151 to Rs.6,41079 crore51 to Rs.6,41079 crore

BE in 2009BE in 2009--10.10.

The Ratio of Direct to Indirect Taxes The Ratio of Direct to Indirect Taxes declined from 40:60 in 1950declined from 40:60 in 195051 to 20:8051 to 20:80

in 1990in 199091.91.

Share of Direct Taxes in the Gross Tax Share of Direct Taxes in the Gross Tax

Revenue was 51% in 2009Revenue was 51% in 2009--1010


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Features of Tax Structure in India

Among the Working Population of 55%Among the Working Population of 55%

only 2.5% is liable to pay Income Tax in India. Asonly 2.5% is liable to pay Income Tax in India. Assuch, Indian Tax Structure relies on a vsuch, Indian Tax Structure relies on a v

Narrow Population Base.Narrow Population Base.

Total Tax Revenue is highly Insufficient Total Tax Revenue is highly Insufficient

meet the Expenditure requirements of themeet the Expenditure requirements of theEconomy.Economy.

Direct Taxes are Progressive, Indirect T Direct Taxes are Progressive, Indirect T

are Differential in Nature.are Differential in Nature. Agriculture Income is wholly exempt fro Agriculture Income is wholly exempt fro

the Incomethe IncomeTax despite the fact that a Tax despite the fact that a

class of Rich Farmers has emerged inclass of Rich Farmers has emerged in

Country which can easily pay Taxes.Country which can easily pay Taxes.


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Evaluation of Indian Tax SystemEvaluation of Indian Tax System The system of Taxation does not conThe system of Taxation does not con

to Canon of Equity asto Canon of Equity as The Indirect Taxes form a big percentage ofThe Indirect Taxes form a big percentage of

Total Tax Receipts which generally fallTotal Tax Receipts which generally fall

heavily on the Poorer Section of Population.heavily on the Poorer Section of Population.

People with Higher Incomes are EvadingPeople with Higher Incomes are Evading

Tax with the consequent Increase in the Tax with the consequent Increase in the

Burden on people with Lower Income.Burden on people with Lower Income.

Inflexible Taxation System as it largely Inflexible Taxation System as it largelydepends on Urban Incomes & leaves oudepends on Urban Incomes & leaves ou

Agricultural Income.Agricultural Income.


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Evaluation of Indian TaxEvaluation of Indian Tax

SystemSystem Service Sector which accounts for mor Service Sector which accounts for mor

than 60% of GDP contributes just 9% towardsthan 60% of GDP contributes just 9% towards

Tax Revenues & 1.1% towards GDP.Tax Revenues & 1.1% towards GDP.

The Booth Lingam Committee & Chellia The Booth Lingam Committee & ChelliaCommittee recommended Simplification &Committee recommended Simplification &

Rationalization of Tax System in India.Rationalization of Tax System in India.

The Cost of Tax Collection has increa The Cost of Tax Collection has increafrom Rs.543 crores in 1990from Rs.543 crores in 199091 to more than91 to more than

Rs.3,663 crores in 2006Rs.3,663 crores in 200607.07.


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Evaluation of Indian Tax SystemEvaluation of Indian Tax System

Evasion & Tax Avoidance are reported Evasion & Tax Avoidance are reported be very High.be very High.

Black Money is generated at the Rate Black Money is generated at the Rate

50% of the countrys GDP.50% of the countrys GDP. Indian Tax System is also accused of Indian Tax System is also accused of

Discouraging Employment.Discouraging Employment.

Distorting Prices.Distorting Prices.

Adversely Affecting Savings.Adversely Affecting Savings.


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Budget Statistics 2010Budget Statistics 2010

CHALLENGESCHALLENGES

TheThe firstfirst challengechallenge isis toto maintainmaintain thethe GDPGDP growthgrowth

raterate toto overover 99%% pp..aa.. thenthen findfind thethe meansmeans toto crosscross

thethe doubledouble digitdigit growthgrowth barrierbarrier

To address the weaknesses in governmentTo address the weaknesses in government

systems, structures and institutions at differentsystems, structures and institutions at different

levels of governance.levels of governance.

-- PRANAB MUKHERJEE,PRANAB MUKHERJEE,

FINANCE MINISTER OF INDIA.FINANCE MINISTER OF INDIA.


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OVERVIEWOVERVIEW OFOF ECONOMYECONOMY

IndiaIndia amongamong thethe firstfirst fewfew countriescountries inin thethe worldworld totoimplementimplement majormajor reformsreforms toto negatenegate falloutfallout ofof thetheglobalglobal slowdownslowdown..

TheThe growthgrowth raterate inin manufacturingmanufacturing sectorsector ininDecemberDecember 20092009 waswas 1818..55 perper centcent thethe highesthighestinin thethe pastpast twotwo decadesdecades..


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OVERVIEW OF THE ECONOMYOVERVIEW OF THE ECONOMY

GrowthGrowth raterate ofof GrossGross DomesticDomestic ProductProduct

dippeddipped fromfrom anan averageaverage ofof overover 99 perper centincentin

thethe previousprevious threethree fiscalfiscal yearsyears toto 66..77 perper centcent

duringduring 20082008--0909..

TheThe structurestructure ofof IndiasIndias economyeconomy changedchanged

overover thethe lastlast tenten yearsyears withwith contributioncontribution ofof

thethe servicesservices sectorsector toto GDPGDP wellwell overover 5050 perpercentcent andand shareshare ofof merchandisetrademerchandisetrade

doublingdoubling toto 3838..99 perper centcent ofof GDPGDP inin 20082008--0909..


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PEOPLESPEOPLES OWNERSHIPOWNERSHIP && IMPROVINGIMPROVING INVESTMENTINVESTMENTENVIRONMENTENVIRONMENT

GovernmentGovernment PlansPlans toto RaiseRaise moremore thanthan RsRs.. 2525,,000000CrsCrs.. throughthrough DisinvestmentDisinvestment ofof PSUsPSUs..

MethodologyMethodology forfor calculationcalculation forfor IndirectIndirect ForeignForeign DirectDirect

InvestmentInvestment inin IndianIndian CompanyCompany hashas beenbeen clarifiedclarified..

GrantingGranting AdditionalAdditional BankingBanking LicensesLicenses toto PrivatePrivateBanksBanks toto diversifydiversify theirtheir operationsoperations andand provideprovide moremore

financialfinancial infrastructureinfrastructure..


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Proposed Laws:Proposed Laws:

Direct Tax Code (DTC) to be implementedDirect Tax Code (DTC) to be implemented

from 1from 1stst April, 2011.April, 2011.

GST to be rolled out from 1GST to be rolled out from 1stst April, 2011.April, 2011.

Introduction of pending Companies Bill, 2009Introduction of pending Companies Bill, 2009

to replace the existing Companies Act, 1956.to replace the existing Companies Act, 1956.


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DIRECT TAXES: Individual (Male)DIRECT TAXES: Individual (Male)

Individual (Female)Individual (Female)

IndividualIndividual--Senior Citizen (Age > 65 Male / Female)Senior Citizen (Age > 65 Male / Female)

TAX RATES REVISED SLAB OLD SLAB

10% Rs. 1.60 L- 5.00 L Rs. 1.60L- 3.00L

20% Rs. 5.01 L- 8.00 L Rs. 3.01 L- 5.00 L

30% Above Rs. 8.00 L Above Rs. 5.00 L


10% Rs. 1.90 L- 5.00 L Rs. 1.80L- 3.00L

20% Rs. 5.01 L- 8.00 L Rs. 3.01 L- 5.00 L



10% Rs. 2.40 L- 5.00 L Rs. 2.10L- 3.00L

20% Rs. 5.01 L- 8.00 L Rs. 3.01 L- 5.00 L



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Direct TaxesDirect Taxes (contd.)(contd.)::

TTo boost investment in Tourism, Initial Capitao boost investment in Tourism, Initial CapitaInvestment in TwoInvestment in Two--Star hotels construction isStar hotels construction is

allowed as Deduction from the incomes.allowed as Deduction from the incomes.

Surcharge on Corporate Income Tax has beeSurcharge on Corporate Income Tax has beeReduced to 7.5% from 10%Reduced to 7.5% from 10%


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Expenses on which, TDS is deducted during theExpenses on which, TDS is deducted during theFinancial Year will be allowed as deduction only if TDSFinancial Year will be allowed as deduction only if TDSis paid before due date of filing of Income Tax Return.is paid before due date of filing of Income Tax Return.

Delay in payment of TDS will attract Interest @ 18%Delay in payment of TDS will attract Interest @ 18%p.a. Vs. 12% p.a.p.a. Vs. 12% p.a.


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Budget Statistic 2010Budget Statistic 2010

IINDIRECT TAXES:NDIRECT TAXES:--ExciseExcise

Basic Central Excise Duty on NonBasic Central Excise Duty on Non

Petroleum Products increased from 8% toPetroleum Products increased from 8% to10% Ad Valorem.10% Ad Valorem.

Central Excise Duty on Petrol & DieselCentral Excise Duty on Petrol & Dieselincreased by Rs. 1 per liter.increased by Rs. 1 per liter.


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Budget Statistic 2010Budget Statistic 2010

Proportionate rise in Specific Duty for CementProportionate rise in Specific Duty for Cement

and Cement clinkers.and Cement clinkers.

AdAd--Valorem Duty on Large cars ,Multi UtilityValorem Duty on Large cars ,Multi Utility

Vehicle increased by 2% to 22%.Vehicle increased by 2% to 22%.


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SERVICE TAXSERVICE TAX GENERALGENERAL

Service tax rate retained at 10 percentService tax rate retained at 10 percent

Significant change in conditions relating toSignificant change in conditions relating to

export qualification; no requirement toexport qualification; no requirement to

demonstrate use of services outside Indiademonstrate use of services outside India

Rationalization of refund processesRationalization of refund processes

No penalty to be levied where service tax alongNo penalty to be levied where service tax along

with interest is paid before issuance of showwith interest is paid before issuance of showcause noticecause notice


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SERVICE TAX NEW SERVICES Promoting of a brands (such as celebrityPromoting of a brands (such as celebrity

endorsements)endorsements) Permitting commercial use or exploitation of anyPermitting commercial use or exploitation of any

event; this may include sports, business, socialevent; this may include sports, business, social

and personal eventsand personal events

Copyrights involving use or rights relatedCopyrights involving use or rights related

cinematographic films and sound recordingcinematographic films and sound recording

Individual artistes, composers etc not coveredIndividual artistes, composers etc not covered

Services provided by builders for provision ofServices provided by builders for provision ofpreferential location or development of real estatepreferential location or development of real estate

complexescomplexes


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fiscal budget and tax policy

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