Centre begins rollback of stimulus in right earnest

Excise duty was cut by six per cent in two phases since December 2008 from a peak of 14 per cent earlier to perk up the economy, which came under the impact of deepening financial crisis.

However, Mukherjee, in the Budget for 2010-11, retained service tax at the level of 10 per cent. The tax was cut by two per cent from 12 per cent as part of stimulus.

The tax proposals will pave the way for introduction of Goods and Services Tax by levelling both exise duty and service tax to 10 per cent. Interestingly, the increase in excise duty came on a day when economic growth slips to six per cent in the third quarter from stunning 7.9 per cent in the preceeding quarter of this fiscal.

As a result of partial withdrawal of stimulus measures, the government would stand to gain about Rs 46,500 crore from changes in the indirect taxes, mainly excise. On other hand, Mukherjee announced major direct tax sops including income tax concessions, which will result in a revenue loss of Rs 26,000 crore.

Besides, Mukherjee hiked excise duty on petrol and diesel by Re 1 a litre, a move that would make the motor fuel costlier.

To bridge the gap between the income and expenditure in the budget that would still have a fiscal deficit of 5.5 per cent of GDP, he also brought in more areas like air journeys of all classes and rental into service tax net that would help him raise additional Rs 3000 crore. In all, net revenue gain is placed at Rs 20,500 crore.

Fiscal deficit

The fiscal deficit of 5.5 per cent of GDP in 2010-11 works out to Rs 3,81,408 crore. Taking into account various other financing items for fiscal deficit, the actual net borrowing of the government in 2010-11 would be of the order of Rs 3,45,010 crore.

Mukherjee proposed a total expenditure of Rs 11,08,749 crore,  which is an increase of 8.6 per cent over the total expenditure in Budget Estimates of 2009-10,  including Rs 3,73,092 on planned activities for which he would raise a non-tax and tax revenue of Rs 6,82,212 crore leaving a deficit of Rs 3,81,408 crore, which would be bridged by borrowing.

The plan and non-plan expenditures in Budget Estimates in 2010-11 are estimated at Rs 3,73,092 crore and Rs 7,35,657 crore respectively.

In the Budget Estimates for 2010-11, gross tax receipts are estimated at Rs 7,46,651 crore while the non-tax revenue receipts are estimated at Rs 1,48,118 crore.

In direct taxes, the Finance Minister proposed to reduce the current surcharge of 10 per cent on domestic companies to 7.5 per cent but at the same time raised the rate of Minimum Alternate Tax (MAT) from 15 per cent to 18 per cent of book profits.

Infrastructure sector gets a Rs 1.73 lakh crore boost

New Delhi, PTI:  In order to boost infrastructure, Finance Minister Pranab Mukherjee gave a lion’s share of total plan allocations at Rs 1.73 lakh crore to the sector, which includes roads, ports, airports and railways, in 2010-11.

In the Budget for 2010-11, the sector will claim as much as 46 per cent of Rs 3.73 lakh crore of the total plan outlay. Of the total allocations for the infrastructure sector, those for roads and railways account for Rs 36,646 crore, an increase of about Rs 3,500 crore.

He said allocation for road transport sector has been increased by 13 per cent. “For the year 2010-11, I propose to raise the allocation of road transport by over 13 per cent from Rs 17,520 crore to Rs 19,894 crore,” he added.

He proposed to raise the allocation for railways by Rs 950 crore in 2010-11 compared with Rs 16,752 crore last year to help it expand its network. “I have provided Rs 16,752 crore in the Budget for 2010-11 for railways to lend her a helping hand,” he said.

On India Infrastructure Finance Company Ltd (IIFCL), set up by the government to provide long term financial assistance to infrastructure projects, he said its disbursements are expected to touch Rs 9,000 crore by March 2010 and reach around Rs 20,000 crore by March 2011.

“IIFCL has also been authorised to refinance bank lending to infrastructure projects. It has refinanced Rs 3,000 crore during the current year and is expected to more than double that amount in 2010-11.

“The take-out financing scheme announced in the last Budget is expected to initially provide funding of about Rs 25,000 crore in the next three years”, he added. Take-out financing scheme refers to banks selling their loan book from infrastructure companies to IIFCL.

Interest sops for exporters

New Delhi, pti: Further relieving the slowdown-hit export sector, the Centre, on Friday, proposed to extend the concessional export finance regime for select exporters for one more year till March 31, 2011.

“I propose to extend the interest subvention of two per cent for one more year for exports covering handicrafts, carpets, hand-looms and small and medium enterprises (SMEs),” Finance Minister Pranab Mukherjee said. The scheme was to expire on March 31, 2010. Mukherjee also said that figures for merchandise exports for January were encouraging after turnaround in November 2009 and December 2009. In January, the country’s exports grew by 11.5 per cent over the year ago period.

Tax relief on ULIPs cheers insurance biz

New Delhi, pti: Budget 2010 has addressed the long standing demand of the insurance sector by imposing service tax only on fund management charges of ULIP products, which invests portion of funds in securities markets.
The gross amount charged by the insurer from the policy holder for the said service provided or to be provided shall be equal to the maximum amount fixed by IRDA as fund management charges for unit linked insurance plan (ULIP), according to Budget papers.
Insurers have long been demanding that the government levy service tax on only fund management charges levied for ULIP schemes, instead of entire range of charges, to bring parity with the mutual fund industry. In ULIP schemes, service tax is imposed on the entire amount that the insurer keeps.