Moving to Clean Up the System, Bring in Transparency
Decision not to change cap gains tax laudable; stable tax regime attracts foreign, domestic investments
Budget 2017 focuses on 10 themes that strengthen the bedrock of the Indian economy, and is indeed a transformational Budget. First, I commend finance minister Arun Jaitley for his out-of-the-box ideas to clean up India’s political system. The government has focused on cleaning the economy, along with transparency and governance. Accountability in political funding is a huge positive. The idea of people subscribing to bonds for political funding will reduce black money for it.
Second, from a macroeconomic perspective, Jaitley has managed to keep fiscal deficit for March 2017 within the 3.5% target. He has also upped the ante on fiscal prudence by further tightening the estimated fiscal deficit to 3.2% for March 2018. Although this is slightly higher than the 3% fiscal deficit target recommended by the Fiscal Responsibility and Budget Management Act, nevertheless when viewed against the growth requirements of the Indian economy, a fiscal deficit of 3.2% by March 2018 is a prudent number to achieve.
Significant funds have been allocated for farmers, education and infrastructure, which are the three pillars of the economy. The FM has given further impetus to small and medium enterprises (SMEs) with the lower tax rate of 25%. This tax saving will give them additional liquidity for growing business. As SMEs integrate into the formal sector, the banking sector is bound to increase its sup- port. SME growth also addresses employment generation, which will have a positive outcome for the entire economy.
Further, the NPA provisioning break for taxation, which has been increased to 8.5% from 7.5%, will boost the banking sector. As a banker, I am happy with this measure.
I also believe that the FM’s decision to not change capital gains tax is an excellent one. A stable tax regime generates positive investor sentiments, and attracts domestic and foreign investments. The FM acknowledged the support that Indians extended to the government’s demonetisation drive and the pain they endured. This initiative has widened the tax net, which helped the government lower taxes, and Jaitley did not shy away from rewarding tax payers from the salaried middle class and non-salaried from the unorganised sector.
Retaining nil tax for income up to ₹ 2.5 lakh, and reducing tax rate by half to 5% for income between ₹ 2.5 lakh and ₹ 5 lakh is a big bonanza for this section. The simplification of the process for this income bracket will encourage more people to pay taxes. The fact that we have recognised ourselves as a largely non-tax compliant society is the first move to transform into our country. The underlying philosophy of this budget is “Do Good, Do No Harm”.
I believe that the finance minister’s decision to not change the capital gains tax is excellent