Mov­ing to Clean Up the Sys­tem, Bring in Trans­parency

De­ci­sion not to change cap gains tax laud­able; sta­ble tax regime at­tracts for­eign, do­mes­tic in­vest­ments

The Economic Times - - Front Page -

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

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