Budget '07 disappoints on taxes front: India Inc

New Delhi, Feb 28 (UNI) Indian Inc while singing the song of praise for Finance Minister P Chidambaram and his Budget 2007-08, did not spare him for hiking the dividend distribution tax, enlarging the scope of Fringe Benefit Tax and not imparting enough growth momentum to the economy.

Describing Mr Chidambaram as being a visionary who had hiked social spending and taken measures to improve the lot of the man on the street, India Inc said they expected the Finance Minister -- a sworn reformer -- to have travelled more on the reform path.

The stock market greeted the Budget with annoyance and hesitation, falling by a whopping 540 points and displaying extreme volatility during the day.

What was peculiar about India Inc's reaction this year was the absence of the usual chamber music -- all in praise of the Finance Minister and the government. It was marred by criticism and sceptcism.

''An opportunity for tax reform has been missed, since there is revenue buoyancy which could have supported a reduction in excise duty across the board. This in turn would pave the way to achieve a composite GST rate of no more than 20 per cent by 2010-11,'' CII President R Seshasayee said.

Under Direct Taxes, the irritants of MAT, FBT and surcharge could have been removed. Instead, these have been infused with further force by extension to areas not appropriate, said Mr Seshasayee.

FICCI President Habil Khorakiwala pointed out that the corporate sector expected a lowering of the tax rates in view of the buoyancy in reveneue collections. On the contrary effective tax incidence would be going up by more than one per cent as a result of the new tax proposals.

The Finance Minister has introduced an additional cess of one per cent for financing secondary and high education; hiked Dividend Distribution Tax from 12.5 per cent to 15 per cent; raised the Dividend Distribution Tax on dividends paid to all investors by money market mutual funds and liquid mutual funds to 25 per cent; brought ESOPs under the FBT net; extended MAT to IT sector and extended 12 per cent service tax on rental on property for commercial purposes.

These measures, the FICCI Chief pointed out, would further add to the tax burden of corporates and send wrong signals at a time when India Inc was expecting rationalisation in corporate tax rates to yield larger revenues through the operation of the Laffer curve effect.

''The Union Budget announced today is a general populist budget with no significant relief to 'Common Man'. The taxes have been further enhanced by incorporation of one per cent additional cess for secondary education.

We would however look forward to the comprehensive bill to amend insurance laws which is proposed to be introduced in the budget session,'' he said.

The tax exemption limit for health insurance under section 80 D has been increased to Rs 15,000 and Rs 20, 000 for senior citizens which is a positive sign to encourage health insurance penetration in the country, he, however, added.

PHDCCI President Sanjay Bhatia, felt that the Finance Minister should have taken this opportunity to introduce path breaking policy initiatives capitalising on the resurgence in economic growth and tax buoyancy. No major initiative has been taken to better manage the expenditure as the non-plan expenditure continues to overshadow allocations for plan expenditure.

The Finance Minister should have aimed at infrastructure development led growth. Allocation of total funds amounting to Rs 500 crore for developing infrastructure for Common Wealth Games will be grossly inadequate, he said.

The direct tax proposals have come as a disappointment and will further increase the effective tax burden on the corporate, rather than aligning the same to the ASEAN rates. The increase in dividend distribution tax to 15 per cent, no significant change in fringe benefit tax etc are areas of concern.

''The enhancement of Rs 10,000 in the basic exemption limit for personal taxation is too miser and does not even take into account the rising inflation in the last two years,'' Mr Bhatia said.

According to him the industry was looking forward to removal of surcharge and increase in depreciation rates for internal generation of resources. Introduction of yet another Education Cess of one per cent in addition to existing Education Cess of two per cent will add to the complexities of taxation, when the government has not been able to fully utilise the Cess collected so far.

Assocham President Venugopal Dhoot said that the impact of increase in the dividend distribution tax on corporates to 15 per cent will be negative on growth, investor sentiment and capital markets.

However, other proposals in the Budget including special attention to agriculture, health and education sectors, besides reducing the fiscal revenue deficits have been welcomed by the industry bodies.

UNI