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Budget 2018: Higher rural outlays, market gains to attract higher levy

Union Budget 2018-19 being presented in Parliament today by finance minister Arun Jaitley, the last full Budget by the current dispensation, will likely see annual increases steeper than that of the Budget’s size in the outlays for infrastructure, rural sector in general and affordable housing, along with special incentives being offered to labour-intensive industries. The headline corporate tax rate is expected to be lowered for larger sections of corporate India. Capital gains from the sale of shares of listed companies held up to 24 months may be treated as short-term gains and taxed at 15% along with the securities transaction tax (STT); currently, gains from such assets held for less than 12 months is taxed at this rate along with STT while longer-term capital gains are exempt and only STT on transactions apply. While Jaitley’s earlier plan warranted corporate tax to be cut for all local companies from 30% to 25%, given the huge revenue impact of such a decision and a potential political backlash, the rate cut might be restricted to firms with turnover of Rs 50 crore to Rs 100 crore (in the last Budget, this relief was given to companies with turnover under Rs 50 crore and manufacturing firms not claiming any tax holidays/benefits).

 

Budget 2018: Address Issues In Benami Property Transactions Act To Crackdown On Black Money

Given that capital-intensive large companies anyway have their effective tax rate much lower than the headline rate, the government could justify the restricted relief, stating that smaller companies create more jobs than the biggies. An across-the-board reduction in corporate tax rate without withdrawal of accelerated depreciation — which accounts for 40% of the revenue forgone on tax incentives — is unaffordable for the government, given the fiscal constraints. Individual taxpayers could expect modest relief too, although an overhaul of the tax slabs are unlikely given that an expert committee, seized of the matter, will give its report only by June-end.

Union Budget 2018-19 being presented in Parliament today by finance minister Arun Jaitley, the last full Budget by the current dispensation, will likely see annual increases steeper than that of the Budget’s size in the outlays for infrastructure, rural sector in general and affordable housing, along with special incentives being offered to labour-intensive industries. The headline corporate tax rate is expected to be lowered for larger sections of corporate India. Capital gains from the sale of shares of listed companies held up to 24 months may be treated as short-term gains and taxed at 15% along with the securities transaction tax (STT); currently, gains from such assets held for less than 12 months is taxed at this rate along with STT while longer-term capital gains are exempt and only STT on transactions apply. While Jaitley’s earlier plan warranted corporate tax to be cut for all local companies from 30% to 25%, given the huge revenue impact of such a decision and a potential political backlash, the rate cut might be restricted to firms with turnover of Rs 50 crore to Rs 100 crore (in the last Budget, this relief was given to companies with turnover under Rs 50 crore and manufacturing firms not claiming any tax holidays/benefits).

 

Budget 2018: Address Issues In Benami Property Transactions Act To Crackdown On Black Money

Given that capital-intensive large companies anyway have their effective tax rate much lower than the headline rate, the government could justify the restricted relief, stating that smaller companies create more jobs than the biggies. An across-the-board reduction in corporate tax rate without withdrawal of accelerated depreciation — which accounts for 40% of the revenue forgone on tax incentives — is unaffordable for the government, given the fiscal constraints. Individual taxpayers could expect modest relief too, although an overhaul of the tax slabs are unlikely given that an expert committee, seized of the matter, will give its report only by June-end.

Income tax Calculator: Calculate impact of Arun Jaitley’s Budget 2018 on your tax liability

With the nominal GDP for the current fiscal year seen at Rs 166.3 lakh crore by the Central Statistics Organisation in its advance estimate against a figure of Rs 168.5 lakh crore which the Budget had relied on, the Centre’s task of meeting the deficit targets has become tougher. Yet, it is unlikely to report a big fiscal slippage — either the fiscal deficit target of 3.2% of GDP for 2017-18 will be met or the slippage could be of just 10 basis points or so. Higher-than-budgeted disinvestment proceeds — which could be close to Rs 1.2 lakh crore — have come in handy for the Centre. The disinvestment target for next year could be much higher than this year’s Rs 72,500 crore.

Budget 2018 India expectations: Here is what Modi government can do for transfer pricing

But meeting the deficit target might need some squeeze on capital expenditure. Budgetary capex, estimated at `3.1 lakh crore or 14% of the Budget in the current year, has been spent briskly in the initial months — up to November-end, it was about 60% of the Budget estimate — so the spending could be reined in during the last quarter of the fiscal.

 

Budget 2018: FM Jaitley May Reduce Corporate Tax, Real Estate Sector To Benefit From Move

If the Economic Survey estimate of nominal GDP expansion of around 12% in 2018-19 holds true, the Centre could expect the tax revenue buoyancy to improve significantly in the year. The stabilisation of goods and services tax revenues, its positive spin-off on direct tax collections and a wider tax net, partly helped by demonetisation, might boost tax revenue next year. The 2018-19 fiscal deficit target, according to the revised glide path, is 3%. The survey has underlined the need for ambitious fiscal consolidation, given that macroeconomic conditions have changed over the last two quarters — growth is picking up, there is an upswing in inflation (global crude oil prices pose further threats).

Budget 2018 expectations of SMEs: More projects, lower taxes

Recently, the Centre has announced that additional market borrowings in the current fiscal year will be to the tune of Rs 20,000 crore, down from Rs 50,000 crore announced late in December. Stating that fiscal deficits of the general (central and state) government might be larger than targeted, the survey noted that even if fiscal overruns occur, that won’t automatically mean that market borrowings will be greater than anticipated. “Put differently, market borrowings do not necessarily reflect the underlying fiscal deficit. That’s because in India market borrowings are determined not just by the fiscal deficits but also by a distinctively Indian arrangement, the National Small Savings Fund,” it said.

Calculate impact of Arun Jaitley’s Budget 2018 on your tax liability

With the nominal GDP for the current fiscal year seen at Rs 166.3 lakh crore by the Central Statistics Organisation in its advance estimate against a figure of Rs 168.5 lakh crore which the Budget had relied on, the Centre’s task of meeting the deficit targets has become tougher. Yet, it is unlikely to report a big fiscal slippage — either the fiscal deficit target of 3.2% of GDP for 2017-18 will be met or the slippage could be of just 10 basis points or so. Higher-than-budgeted disinvestment proceeds — which could be close to Rs 1.2 lakh crore — have come in handy for the Centre. The disinvestment target for next year could be much higher than this year’s Rs 72,500 crore.

 

Budget 2018 India expectations: Here is what Modi government can do for transfer pricing

But meeting the deficit target might need some squeeze on capital expenditure. Budgetary capex, estimated at `3.1 lakh crore or 14% of the Budget in the current year, has been spent briskly in the initial months — up to November-end, it was about 60% of the Budget estimate — so the spending could be reined in during the last quarter of the fiscal.

Budget 2018: FM Jaitley May Reduce Corporate Tax, Real Estate Sector To Benefit From Move

If the Economic Survey estimate of nominal GDP expansion of around 12% in 2018-19 holds true, the Centre could expect the tax revenue buoyancy to improve significantly in the year. The stabilisation of goods and services tax revenues, its positive spin-off on direct tax collections and a wider tax net, partly helped by demonetisation, might boost tax revenue next year. The 2018-19 fiscal deficit target, according to the revised glide path, is 3%. The survey has underlined the need for ambitious fiscal consolidation, given that macroeconomic conditions have changed over the last two quarters — growth is picking up, there is an upswing in inflation (global crude oil prices pose further threats).

 

Budget 2018 expectations of SMEs: More projects, lower taxes

Recently, the Centre has announced that additional market borrowings in the current fiscal year will be to the tune of Rs 20,000 crore, down from Rs 50,000 crore announced late in December. Stating that fiscal deficits of the general (central and state) government might be larger than targeted, the survey noted that even if fiscal overruns occur, that won’t automatically mean that market borrowings will be greater than anticipated. “Put differently, market borrowings do not necessarily reflect the underlying fiscal deficit. That’s because in India market borrowings are determined not just by the fiscal deficits but also by a distinctively Indian arrangement, the National Small Savings Fund,” it said.