From alarming to worrisome

It was anticipated that the Vote on Account would not introduce tax amendments for 2014-15 but would be an exercise to review the performance of the UPA and the outcome of fiscal consolidation initiatives.

The Finance Minister, true to his promise, (over)delivered on the fiscal deficit target from 4.8 per cent to 4.6 per cent of GDP.

Though there are questions on the quality of deficit target he has been able to achieve, it’s fair to say that from an alarming state of affairs in 2013, we have a worrisome situation in 2014.

The focus of the government remains on short-term measures of as it gets into election mode. It would be relevant to introspect on the seemingly ‘short-term’ steps undertaken to achieve the stated milestone.

Expenditure side On the expenditure side, this has been possible due to an across-the-board cut in planned expenditure and deferral of the oil and fertiliser subsidies. Scrutinising the receipts side of the budget, the government clearly benefited from ₹18,000-crore realisation on telecom spectrum and an out-of-turn increase in dividend and interest payouts from profitable PSUs.

The direct and indirect tax collections, though higher than FY 2012-13, were expectedly less than the aggressive projections. There has been a six per cent reduction in corporation tax, and 8 and 9 per cent reduction in estimates of service tax and excise duties, respectively. The minister remained noncommittal on vital areas of enhancing FDI and boosting investor confidence — it is unclear how the projected fiscal deficit will be maintained below the target for next year, particularly since he is banking on 18 per cent tax buoyancy.

He was left with limited options on tax reforms and didn’t miss the opportunity to hold the opposition responsible for paralysis in pursuing with twin reforms, namely DTC and GST.

Leaving aside the DTC, a lot was desired on dispute resolution as the approach of the tax administration driven by tax collection targets is far from non-adversarial, and administrative reforms are the need of the hour. Corporate India eagerly looks forward to the developments on the Tax Administration Reform Commission (TARC) expected in May 2014. A statement on TARC would have helped boost the confidence of domestic companies and MNCs reeling under pressure.

Excise duty cut A positive announcement of course has been the reduction in excise duty by 2 per cent to 6 per cent to foster manufacturing in select sectors. Notable amongst these are reductions in excise duties on certain capital goods, consumer durables, mobile handsets and the automobile industry. It is important to factor that these changes are effective immediately and applicable up to June 30, 2014. Overall, other than providing a booster shot to manufacturing, the ‘Achilles heel’ of the economy, the Finance Minister’s speech remained largely a vision statement.

The writer is the Managing Partner, BMR Legal. The views are personal.

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