Relief for small firms hurt by note recall

Jayanta Roy Chowdhury, TT,  New Delhi, Feb. 1: Arun Jaitley today tabled a budget that sought to stick to its assigned role but pencilled in measures aimed at soothing concerns of some sections that bore the brunt of demonetisation.

The corporate tax for companies with a turnover of less than Rs 50 crore will be slashed to 25 per cent from 30 per cent.

Such small and medium businesses, considered the BJP's core support base, have been left reeling from the demand-busting effects of the demonetisation drive that made the Prime Minister's favourite opening line "Mitron" a euphemism for nasty surprises.

Finance minister Jaitley said 96 per cent of the companies - numbering 6.67 lakh - that filed their returns in 2015-16 "will get the benefit of lower taxation".

The government chose to describe the annual book-keeping exercise as pro-poor and pro-farmer, pointing to a proposed hike in rural spending by 24 per cent, a promise to raise farm sector loans to a record Rs 10 lakh crore and the offer to trim the tax rate at the lowest slab to 5 per cent.

The budget did little to enliven market investors, big industry and the rich who were expecting big stimulus measures to kick-start a faltering economy. If anything, big industry and the super-rich had some reason for resentment as the government slapped a 10 per cent surcharge on taxable incomes between Rs 50 lakh and Rs 1 crore, topping the 15 per cent surcharge on incomes of over Rs 1 crore that was imposed last year.

The extension of the surcharge to this group of taxpayers appeared to fly in the face of Jaitley's assertion that the Modi government intended to honour the honest taxpayer.

Some taxpayers could also be spooked by the prospect of tax sleuths opening up 10-year-old returns if search operations turn up undisclosed income and assets of over Rs 50 lakh.

The government signalled its resolve to push the agenda for a less-cash society by seeking to cap cash transactions at Rs 3 lakh per person per day. Firms will now be allowed to claim expenditure in cash only up to Rs 10,000 and cash donations to charities have been limited to Rs 2,000.

Government sources said the objective was not to detonate a big bang but build on the recent trend of "putting budget back into budget". In other words, undertake an accounting exercise required to run the government. If the government wants to initiate any reforms, little prevents it from doing so on any other day and independent of the budget, they said.

But Jaitley did scrap the Foreign Investment Promotion Board (FIPB), a stodgy bureaucrats' club that vets foreign investment proposals. The move will cheer investors who have had to work their way through red tape - a reason the country has languished at a lowly 130th position in the World Bank's Ease of Doing Business ranking tables.

"This is a budget which could have been made in any given year. He has not made any great provisions to counteract the major economic disruption caused by demonetisation. It is a story of small giveaways here and a modest rise in spending there," said Pronab Sen, economist and former chairman of the National Statistical Commission.

Prime Minister Narendra Modi contrived a coinage - FUTURE - to describe the budget. The 'F' stands for the farmer, 'U' for the underprivileged, 'T' for transparency and technology upgradation, 'U' for urban rejuvenation, 'R' for rural development and 'E' stands for employment for youth and entrepreneurship, Modi said.

Stocks leapt on the bourses as market operators were relieved that there was no change in the capital gains tax on share transactions and the tax on dividends. The sensex vaulted 486 points to close at a three-month high at 28141.64.

Jaitley raised the target for the fiscal deficit to 3.2 per cent of the gross domestic product in 2017-18 - and tried to derive some virtue from the fact that he had not taken advantage of the "escape clauses" that the N.K. Singh committee on fiscal rectitude had proposed with its suggestion for a 0.5 percentage point leeway in years when a particularly disruptive tax reform like demonetisation takes place.

He raised capital investment by 25.4 per cent and health spending by 28 per cent but preferred to stick to the earlier plan of providing just Rs 10,000 crore to recapitalise state-owned banks that have been grappling with a mountain of bad loans.

The budget promised to grant industry status to affordable housing, which meant that realtors involved in these projects would gain access to cheaper loans.

In order to spur the creation of a digital economy, Jaitley gave effect to Modi's promise to reduce presumptive taxes on small traders from 8 per cent to 6 per cent.

The budget tried to bring about transparency in political funding by introducing the concept of electoral bonds and limiting anonymous cash donations to parties to Rs 2,000 per person.