The Union Budget for the year is around the corner. Get set to play brain-numbing ‘marks out of 10 for the Budget’ games with happy-to-oblige corporate honchos post Budget and prior to it, suffer ‘talking heads’ taking one on flights of fancy with their ‘clairvoyance’ about likely Budget goodies.
The rich view the Budget as an annual pin-prick while the poor have very little to lose, in any case. It is the beleaguered middle-class, which bears the brunt of most draconian tax announcements and hence fears it, most. It is probably thus that they seek temporary comfort in riding on the flights of fancy peddled for ages now, by ‘talking heads’ on the telly.
The greatest middle-class fantasy that they successfully fuel almost every year is that Income-Tax must and will be replaced by Expenditure tax. The better informed know that both taxes are already in place in the form of direct and indirect taxes and hence, the two are not really mutually exclusive.
Furthermore, no government with even basic political acumen will go down this path and give its opponents a big stick to beat it with. One rung below, on the flight of fantasy, is the ‘pearl’ that personal tax rates will be reduced to a uniform 15% level. Factual evidence suggests that the best-case scenario has been some minor tinkering of the entry-level taxable income threshold. Its likelihood invariably improves in a year preceding a general election.
Then there are those on the fringes of the stock market who yearn for a return to the zero capital gains tax regime for equities that was announced around two decades ago and reversed a little more than half a decade back. Again, the fact is that the exchequer extracts more than its pound of flesh in the form of not just capital gains tax, but also a steep securities transaction tax. Moreover, the Capital Gains tax rate across asset and sub-asset classes vary and is confusing, to say the least. While a clean-up is overdue, to expect it, would be optimistic.
Corporate lobbying ensured the end or at least, near the end of the draconian double taxation of dividends. In a case of the cure being deadlier than the disease, it was replaced with a full tax having to be paid by the recipient which was another case of shifting of the goal-post for long-term equity investors. Am presuming the underlying message is clear by now - the Budget always was and will remain not just a financial but also a socio-political statement.
So, expect nothing, shut out external noises and especially the high-decibel ones that take you on futile flights of fancy that invariably land nowhere. Instead, focus on investing prudently and for the long term to earn enough to offset the impact of any adverse Budget announcement.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com