The Hindu Business Line : Lacking in depth, vision

Chennai, March 1 ‘A Russian circus, run not on dream or design, but on sheer desperation’ — this is how Mr V. Ranganathan, Partner, Ernst & Young, dubbed the Union Budget 2008, calling it “an amazing disappointment”. He said the Budget was foisted upon a tripod whose three pillars were — ‘populism pays’, ‘you can gain by gamble’ and ‘future is disconnected with the past’.

At a ‘Budget Impact 2008’ session organised by the Madras Chamber of Commerce and Industry, Mr Ranganathan said the announcements made by the Finance Minister lacked depth and vision and it was unlikely that the perceived benefits would percolate down to the public.

For instance, across-the-board reduction of Central sales tax to 2 per cent was unlikely to result in cheaper goods (as perceived) as most goods were anyway being sold at a discount. “If anything, this move may at best improve dealer margins,” he said.

On pushing up the income-tax limits, he said though people would have more money in their hands, it would not mean they would drive up consumption of goods and services. “Asian economies are not driven by consumption but by export. The saving rate in India is about 34 per cent.” While admitting that saving is also good for the economy, Mr Ranganathan said the personal income-tax break would not result in increased consumption.

Tax decision

Instead of tinkering with the income-tax, the Finance Minister should have chosen to slash corporate tax, which according to him would boost industrial activity. Noting that “investment is not waiting outside the Red Fort to be brought into India”, Mr Ranganathan warned that in a globalised economy it is easy for a company to legitimately shift its profits to other countries, where tax rates are lower.

Corporate tax in India is over 33 per cent excluding duties that are industry specific. China has a corporate tax rate of 25 per cent while Singapore’s is under 20 per cent and still reducing. These global corporate tax scenarios have not been considered while preparing the Budget, he said.

He called the Rs 60,000-crore waiver of farmer loans as an “irrational approach” to help farmers. The waiver may help three-crore small farmers, but what about the 30-crore landless labourers? If the small farmers are in distress, would the landless labourers be in prosperity?

Besides, a blanket waiver of loans even benefits farmers who may not need these benefits. “Farmers in Punjab and Haryana may not need the waiver while those in Maharashtra and Andhra Pradesh may,” he added. “The Finance Minister should not have mentioned the writing off of loans with a smiling face. It is a matter of shame. It indicates the failure and breakdown of the institutional machinery in fostering agriculture in this country,” he said.

Mr A.Viswanathan, Managing Director, Visteon India, said details such as who would bear the cost of the farmer loans waiver, how it would be funded and until when it would be funded were not available. Also, what would be the impact of the waiver on banks and consequently how would it credit availability and interest rates for other industries were also questions awaiting answers, he added.

Software discrepancy

On the issue of taxing software, Mr N. Venkatraman, Senior Advocate, said there were discrepancies on when software could be considered a service and when it is goods and taxed accordingly. For instance, software bought on a CD was considered goods while the same thing downloaded on the Internet was considered a service. The issue needs clarification, he said.

He said more technical issues were finding their way to the courts, however, non-technical people were taking decisions on it. “We need to close this gap and ensure people understand what needs to be taxed and what not,” he said.

He cited the example of an ERP implementation case where the company concerned was taxed for ERP implementation in addition to being taxed for buying the ERP software. Such anomalies would not exist if lawmakers were technically sound, he said.

More Stories on : Budget | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page