We will come up with clarification on new personal tax regime, says Finance Minister Nirmala Sitharaman

The newly proposed income tax regime lacks clarity, admitted Finance Minister Nirmala Sitharaman in her candid interview a day after she presented the Union Budget. But what she did not accept was that it would miss the middle and lower middle income group, for whom it was carefully crafted. Top sources in her ministry are not convinced moving to new tax regime will help the middle class. Her budget was more focussed on infrastructure sector spending becuase she thought it was worth spending in the sector that has a multiplier effect on the economy. Edited excerpts:

What was the idea behind reorganisation of personal tax regime?

The objective was gradually to move to a regime where tax rates are significantly lower than what it is today and it is simpler to comply. That can happen when we remove all exemptions. Like in some countries, if you are earning say, about Rs 50,000, you pay X amount in tax and get away. There are no exemptions. There are no ifs and buts. We are not saying, lets move to that regime today. But eventually, we should. We have started the process and kept alive the old scheme too. Go for whatever suits you.

There are concerns one would end up paying more tax in the new personal tax regime?

That may be because of us. (The Ministry of Finance). There is definitely a lack of clarity. That is why we have started issuing clarifications. I would certainly not have announced all of those in my budget. We will now come up with clarifications.

The ministry is doing the calculations. Once the due explanations are offered, it will be for everyone to see that the new tax regime is better off because the tax cuts are deeper. And, also we have not taken away all exemptions. There are certain exemptions, which are allowed even in the new system.

Could the insurance products lose their importance after the new tax regime?

When you move out of the socialist model of governing the economy, open up the stock market and also attract retail investors with the bond market, you are out of the command-driven economy in which certain incentives force you to move into certain direction. It no longer gels. One should leave it up to the investor. If there is a worry that the incentive will impact insurance, I will tend to believe that incentive alone is not the reason for an investor not to choose insurance. Now the options are open. Money will only go towards something else, which is also going to help the economy. People will put it in mutual fund, they will buy bonds. That will trigger a lot more activities.

How realistic are the tax numbers for the next year? They went woefully wrong this year?

Numbers are not given always in anticipation of what is going to happen and therefore that is not wrong. The assessment based on the development in the economy may be different from what turns out to be in reality.

A lot of the money would be going into infrastructure sector, which has a long gestation period. What has the budget done to give immediate relief to a slowing economy?

When the government spends money, such expenditures are used to create assets. In doing that, the benefit spills over to people who are engaged in creating those assets. Further, those assets stand out as catalysing economic activity. So, the expenditure plan has both near term and long term effect.

NRIs are being taxed in India. They are not taxed anywhere in the world?

The government has no intention to tax global incomes of NRIs. However, if you are an NRI, who does not live in India but generates some earnings in India or has a property, which generates a rent in India, he or she will have to pay tax on that income or that rent because that is being generated on the Indian soil.

Are your disinvestment targets lofty considering that you have not even reached halfway through last year’s target?

We have done a lot of ground work. We may not have generated money through our disinvestment programme in the current year but we have initiated the process and the sale may take sometime to happen because of the prevailing market conditions. The benefit may not accrue this year but a lot of the ground has been covered. That gives me the confidence that we will reach the target next year.

What was your approach to the budget? Which sector you wanted to give importance to?

I did not have any particular constituency in mind. I did not go through any sectoral approach. I think if you are looking at the economy and what the macro economic fundamentals are, you have to give equal importance to all the sectors that are contributing to the economy.

Very clearly, we have taken into consideration the government’s responsibility to give an impetus to the economy. We have laid a path before everybody to see where the money is going to be spent. Investment, asset creation, infrastructure clearly is the area where we think it is worth spending and we have taken that route.

Why did you substantially lower the food and fertiliser subsidies?

It is high time this country understands the level of fatigue the land has reached because of excessive chemical fertiliser usages. Today, consumers too prefer organic food. They don’t want overly fertiliser-driven crop. Incentivisation of fertiliser use is more towards chemical fertiliser rather than organic fertiliser. That correction is required. On food, the government will pay more if you utilise more.

The estimates were made for the full year, but the usage were only for about nine months, so obviously the allocation had to be revised.