Jaitely announced major sops for Small and Medium Enterprises (SMEs) and people in lowest income tax slab while refusing to provide succor to big industries and corporates as was the demand.
He instead, cut income tax rates from 30 to 25 per cent for SMEs with annual turnover of Rs 50 crore. Of the 6.94 lakh SMEs in the country, as many as 96 per cent fall under this category and hence would be the beneficiary. He tried to justify the move by citing figures –industries earning a profit of Rs 1 crore – which number 2.85 lakh – were paying income tax at the rate of 30.26 per cent while 298 companies which were earning profit of more than 500 crore were being made to pay income tax at a rate of 25.90 per cent only. But, more than that, it is a move to dispel notion of being a “pro-rich” or being “suit-buit ki sarkar”.
He more than warned those who had “tried to convert their black money into white by depositing in their bank accounts”.
The Finance Minister dropped enough hints of measures to generate more funds for the state treasury by unlock potential of PSUs like Indian Railway Catering and Tourism Corporation (IRCTC) which would soon be listed on the stock exchange.
“We have computed that amounts between Rs 2 lakh to Rs 80 lakh – with an average of Rs 5.03 lakh per account – have been deposited in 1.09 crore bank accounts between November 8 and December 30. Similarly, Deposits of more than 80 lakh were made in 1.48 lakh accounts with average deposit size of Rs 3.31 crores. This data mining will help us immensely in expanding the tax net as well as increasing the revenues, which was one of the objectives of demonetisation”, Jaitely said in his budget speech.
The government is clear in its approach – strengthen the infrastructure and rural economy while lowering the bank interest rates. This will put more money in people’s pocket at the same time discouraging people for saving it. Splurging money would enhance consumption thereby boosting both service sector as well as manufacturing, is the clear message.
If Jaitely’s figures are taken into account, it means a sum of Rs 10.38 lakh crores out of a total Rs 15.54 lakh crore demonetized money, was deposited in 2.5 crore out of total Rs 20 crore bank accounts. That is over two third money deposited in 10 per cent accounts. Jaitely’s intentions are clear – to penalize tax evaders and to widen the tax net.
Continuing efforts to present a more humane face – on the eve of Assembly elections to 5 crucial states – the Finance Minister reduced income tax rates for those having income between Rs 2.5 lakh to Rs 5 lakh from existing 10 per cent to 5 per cent. He did not touch those in higher income slabs – people who might be much more influential but constitute a miniscule minority.
We can contrast this with the fact that in the last five years, more than 1.25 crore cars have been sold, and number of Indian citizens who flew abroad, either for business or tourism, is 2 crore in the year 2015.
Another minor though significant reform was to waive of service charge on e-tickets booked through IRCTC by millions of people very day. Earlier, the IRCTC used to levy a service charge of Rs 20 on sleeper class and Rs 40 on AC class e-tickets.
Finance Minister did usher in couple of major changes. First being abrogation of Foreign Investment Promotion Board (FIPB) – since over 90 per cent industries did not need FIPB clearance for inviting FDI. It was a change due for long.
Second but more radical change has been brought about in political funding in view of a loud chorus for introduction of radical electoral reforms to check unbridled splurge of money during elections. Besides, political parties are not required by the law to give account of donations received up to Rs 20 thousand. Jaitely announced two measures – first was lowering the limit of individual donations from Rs 20 thousand to only two thousand rupees.
And second step was to release Electoral Bonds (EB) which may be bought by any one – corporates or individual and donate to political parties. This would check inflow of black money into elections. Anyone purchasing EBs would need to declare the transaction in his income tax return while at the same time it could conceal the name of the party, the money has been donated to.
It remains to be seen whether it is a foolproof system to check black money because donations below Rs 2 thousand have been exempted from scrutiny and hence could become a tool to push in black money.