HYDERABAD: In policymaking, the first step comes with a second, third and more. And Finance Minister Nirmala Sitharaman has taken this tenet a bit more seriously extending it to the budget-making exercise.
Until now, the natural order was to seek inputs before the budget, and stakeholder interactions happened prior, not after. But for the first time, India’s federal budget-crew comprising Sitharaman and her battery of secretaries including Rajiv Kumar, Ajay Bhushan Pandey, TV Somanathan, and others, are taking a multi-city tour to explain and clarify the contents of the budget and seeking feedback from traders, industrialists, economists and academicians.
In one such pow-wows to decipher Sitharaman’s sums held at Hyderabad on Sunday, the FM and her team had one broad point to put across, measures announced in the budget were preceded by analysis and only reason will dictate policy, not a whim. Take for instance income taxes. Thanks to Sitharaman, for both corporates and individuals, the country now offers a tax salad with an assortment of tax structures, one with all exemptions and the other with fewer deductions.
Critics might argue that it’s a leap into administrative complexity, but when looked at from government perspective, our taxation laws are set for a radical overhaul. In other words, Budget 2020 has actually written the first lines of the age-old I-T Act’s obituary and exemptions are tipped for the full chop sooner or later.
Though the government aims at a simple, clear and lower tax rate system, it isn’t making a characteristically grand promise by when it’d be a reality. The Ministry’s internal simulations show 69 per cent income taxpayers moving to the new regime, with 11 per cent deciding to switch simply due to simplification of tax structure. Perhaps, the pace of adoption will fasten the overhaul.
Explaining the rationale behind the Tax Collection at Source (TCS) on remittance under the Liberalized Remittance Scheme, Pandey said, the idea was to widen the tax net and prevent the sleight of hand. The Ministry’s internal assessments showed astonishing data with remittances shooting up to $14 billion in FY19 from $900 million a few years ago.
“Those who paid TDS need not worry as TCS isn’t an additional tax and taxpayers can claim full refund. We imposed TCS to get non-taxpayers into the tax net,” Pandey said. Similarly, when one of the participants, an oncologist questioned the wisdom of imposing 5 per cent cess on imported medical devices, which would held generate some Rs 4,000 crore, even as the government’s Ayushman Bharat scheme has unutilised funds worth Rs 3,500 crore, Sitharaman clarified that the funds raised via cess was for building medical infrastructure in Tier II and III cities, and that the unutilised funds cannot be tinkered with for purposes other than subsidizing healthcare services for the poor.
Another participant wanted the Ministry to continue with Dividend Distribution Tax (DDT), which is easy to administer (budget removed DDT for companies, but imposed it on retail investors), Pandey clarified that the move was to help foreign investors, who were unable to claim benefits at their home base. “We need foreign capital,” he said.
Meanwhile, amid the growing drumbeat of fiscal anxiety, Sitharaman was direct at reiterating that fiscal discipline will not be compromised. “We have not really breached the Fiscal Responsibility and Budget Management (FRBM). We have not gone outlandish on it. We have kept fiscal discipline, which is a USP for both the Atal Bihari Vajpayee government and also for the Narendra Modi government,” she said.