Chidhu, our Finance Minister, P.Chidambaram was prompt for his Date! On February 28, 2006 he presented the General Budget (Chi-doku) for the financial year 2006-07 in Lok Sabha.
The man, who made a dream budget in 1997, made his fifth budget as a “No Big Bang” budget. The philosophy seems to “Don’t touch anything when the economy is doing well”. With a bit of tweak here, twist there he has managed to do the same. Alas, he managed to keep the index firm on its rising trend. Sensex closed nearly 36 points high at the end of the day.
The primary focus of the budget was on social and infrastructure sectors. The service sector was given a bit of facial and the personal tax was left untouched.
Massive investments are proposed to develop 1000km Express highways. Also, there was assurance that by June 2006, 96% of the Golden Quadrilateral project will be completed. In the power sector, Chidhu has proposed to generate few more thousand watts. For the other two important cogs of the Power sector wheel, transmission and distribution, he has made the Prime Minister at the helm of affairs to establish an Empowered committee of Chief Ministers and Power ministers. He has also said that more than 50 million rural connections will be rolled out in three years time. These are some of the highlights of the budget on the Infrastructure front.
Allocation of funds to Primary education and health care is a welcome aspect of this budget. In the outlay for education, most of the money is channeled for Primary education. I felt more funds should have been allocated for higher studies and R&D.
The index rose steadily till the announcement of hike of 25% in Security Transaction Tax (STT) was made. There was a momentary panic in the market and it lost close to 70 points in the rally till the next announcement. Nobody will complain when they are asked to pay tax when they made gains. On the contrary when the investor is asked to pay tax for the loses he has made, it’s sure to raise enough eye brows on the market. FM then followed with an assurance to the foreign investors by increasing their investment limit in the Capital markets and setting up of an investor protection fund, which is a step in the right direction to bolster the confidence of the retail investors. But the disbursion mechanism needs to be worked out correctly. After this the Sensex downfall was arrested and became firm.
There was a no change to the personal tax framework. I was expecting the limit to be raised from 1 lakh to 1.5 lakh. But the real good news was there were no new taxes that were imposed. I would not have been surprised, if he had levied few percentage points cess for Petroleum, just kidding! So the only good news for poor souls like us, there are couple of avenue for investment, in the form of Fixed deposits in Scheduled banks, with a rider that the minimum lock-in period of five years. The ceiling for investment in Pension funds has been increased from Rs.10, 000 to Rs.1 lakh.
“Charity needs face”, seems to be message from FM. Any anonymous donations made to the social organizations will not be recognised for tax purposes. So, be proud and show your face to the world and let them know about your generosity.
FM has decided to issue PAN Suo moto and hence direct person to apply for PAN on a case-by-case basis. In the fine print, it has been mentioned that the next list of transactions for which quoting will be made mandatory will be announced shortly. What skeleton does that cupboard hold? Let us wait and watch.
This article will not be completed without the mention of Service tax. It has been increased to 12% from 10%. For a common man like me, what interests in the budget is how much more will I get (cash inflow) and how much should I spend (cash outflow). He has made Shoes, Umbrella, Packaged foods, Pastha cheaper and making it affordable. But after consuming all these when I ask for my bill, I will be charged 2% more than the normal. This means there is an offset for the price reduction.
FM wants the GST to converge. Already the equilibrium level is at 14%. So we can expect further increase of service tax. What we have seen is just the beginning.
After reading the transcript, it looks like Chidhu has forgotten the word “Disinvestment”. Only two companies are under consideration for privatization. Also the target is set at a modest Rs.3500 cr. After rubbing cold shoulders with Left on many occasion, probably he thought this is not the best of times.
It is very evident that, FM has made some conscious decisions to make this an “aam-aadmi” budget.
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