The run up to, and the immediate Budget aftermath, is that time of the year when television channels get prepared to play brain-numbing ‘marks out of 10 for the Budget’ games with happy to oblige corporate honchos.
On the individual front, the rich view the Budget as an annual pin-prick and the poor have very little to lose, in any case. The ones who follow the pre-Budget media coverage closely and are most affected too are the beleaguered middle-class. Unfortunately, this leads to fantasies.
The biggest middle class fantasy fuelled by ill-informed ‘experts’ is that Income Tax 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.
Then, there is the perpetual fantasy that personal tax rates will be reduced to a uniform 15% level. Historical evidence suggests that barring some tinkering of the threshold at the lowest tax rate level, most changes in personal taxation have been harsh and punitive in nature with steep surcharges and some new forms of cess being periodically added to further deplete the net income of individuals.
Many stock-market participants, I have noticed over the years, tend to view the Budget as an exercise exclusively for their benefit and have fantasised about a return to the zero capital gains tax rate for equities.
In reality though, the Indian exchequer extracts more than its pound of flesh in the form of not just capital gains tax, but also a steep securities transaction tax. Further, there is near random Capital Gains tax rates even across sub-asset classes that is confounding.
What about Dividend Tax ? Hopefully, it will go this year is yet another fantasy that is doomed to bite the dust. Corporate lobbying ensured the end or at least, near-end of the draconian double taxation of dividend. 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.
There are many more middle class fantasies that play out for around two weeks in the run up to the Budget, fuelled by talking heads on television, only to be dashed to the ground post the actual announcement of the Budget.
To cut a long story short, middle class investors would do well to recognise that the Budget always was and will remain not just a financial but also a socio-political statement that attempts to balance the needs of the economy with maximum political mileage. The middle class is more often than not, the collateral damage in this exercise.
My suggestion thus is, to focus your energies instead on investing prudently and for the long term. Shutting out external noises and especially the high decibel ones emanating from television sets, pre and post Budget could be a good way to start.
Ashok Kumar
Head of LKW-India. He can be reached at ceolotus@hotmail.com