The Hindu Business Line : Tax reforms and rationalisation

It has been a difficult task for the Finance Minister to balance fiscal deficit on the one hand and to meet expectations of corporate India and individuals on the other side.

Also, various Government schemes that require huge budgetary support make this task even more difficult.

Overall, the Budget emphasises the Government’s intent to move forward on the tax reforms agenda.

There are clear indicators that, over years, the tax rates and the tax administration process are likely to undergo change — benefiting the industry, easing compliance and collecting more revenue!

To begin with, removal of Fringe Benefit Tax (FBT) and Commodity Transaction Tax is a welcome step.

Since the introduction of FBT, the industry has been demanding that it should be removed/rationalised as it taxes genuine business expenditure. Besides, FBT had added to the administrative and compliance issues, which could further lead to unnecessary litigation.

Right beginning on IT

It is stated that Government intends to remove surcharge in a phased manner.

A right beginning in this direction has been made in respect of personal income-tax where the surcharge was removed on income exceeding Rs10 lakh for individuals.

This would provide tax relief of 3 per cent to individuals in the highest tax slab.

Industry should now hope that surcharge will be removed on corporate tax as well in the next/following budgets. Due to the global economic downturn, few sectors have been hurt badly, including the IT industry.

Therefore, extension of the tax holiday by an additional one year should bring cheer to this sector.

Inspite of the revenue pressures, the Government has not increased the tax rates for the corporates. Increase in MAT from 10 per cent to 15 per cent is primarily aimed at collecting more tax from corporates that have book profits but no or minimal tax profits, due to various tax exemptions/ deductions.

To enlarge tax base, presumptive tax is being proposed for small businesses with a turnover of up to Rs 40 lakh Further, small businesses can pay their tax at the time of filing their tax return.

This will again leave money with them during the financial year to meet their business requirement and help reduce compliance cost.

On indirect tax front, in general, the peak rates of the customs duty, the excise duty and service tax rates have been maintained, which is again a big relief in the current economic situation.

Also, Government’s intent to move forward with the GST effective April 2010 appears to be quite aggressive.

The underlying theme of the current Budget has been to move forward with the reform agenda, to rationalise the tax structures and maintain status quo in respect of the tax rates while giving some relief to the individual tax payers.

The author is Executive Director, KPMG.

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