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While it was the general perception that the budget this year would be an uneventful one, the announcement did not fail to surprise us. It is indeed heartening to see the Finance Minister devote a good portion of his speech to making a commitment to implementation of the pending reform initiatives like DTC, GST and Companies Bill.
Pros and cons
While Finance Bill has come out with positives like liberalisation of slab rates, extension of tax holiday to power developers and incentive to developers of affordable housing, withdrawal of profit-linked tax holiday for commercial production of mineral oil would impact the blocks licensed and awarded after 31 March 2011 under New Exploration Licensing Policy.
Reduction of surcharge to 5per cent will bring the effective rate of tax for a corporate assessee from 33.22-32.45 per cent . The rise in rate of MAT to 18.5 per cent will bring the overall effective rate of MAT to 20 per cent i.e. in line with DTC. MAT will now be levied on LLPs as well. However, imposition of MAT on SEZ developers and units and DDT on SEZ developers is retrograde step as it seeks to impose tax on income received from investments made with a commitment of tax exemption.
Tax issues
Taxation of dividends from foreign subsidiaries at a reduced rate of 15 per cent will help Indian corporates to repatriate dividends from their overseas ventures. Though practically many Indian corporate who are on overseas growth plan would need fund overseas and may not choose to repatriate it to India.
On the Indirect-tax front, although no changes in the service tax rate have been made, several new services have been included to bring it in lines with GST. Initiatives are taken to have discussions with the State Governments to expedite the introduction of GST.
The budget sets a huge expectation that India is on its way to sustain the economic growth. It would be a great achievement if we are able to achieve growth along with the set fiscal targets.
(The author is the Head of Tax, KPMG.)
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