Union Budget 2011 provides policy direction on tax

By Shyamal Mukherjee

The Union Budget 2011-12 will go down in history as one that provided a clear vision on taxation policy. No bigbang announcements, no major tax cuts, yet it is a balanced Budget given the tough economic and political environment in the country. The finance minister showed confidence that the country’s GDP for 2011-12 would grow above 9% and has sent a strong signal of continued growth to the world at large. On the policy front, the finance minister has reaffirmed that the new Direct Taxes Code (DTC) will be effective from April 1, 2012, and expects all stakeholders to be prepared for the same well in advance. With the inception of the DTC, the government’s vision appears to be clear: to make taxes moderate, payments simple and tax collection easier.

The finance minister has emphasised on making compliance simpler for individuals, the largest proportion of return-filing population. The government not only fancies to improve the efficiency of the entire system through better IT infrastructure but, more importantly , it aims to free its resources from mundane tasks. The clear intent of the finance minister in this Budget is to enable the machinery to tackle the menace of generation and circulation of black money. Thus, the policy of the government is spelt out clearly in this Budget. Another policy measure worth discussing is the focus of the government on tackling and curbing tax litigation. Today, this appears to be one area that requires immediate attention. Substantial revenue remains locked in the prolonged appellate process consuming substantial efforts and blocking the revenue of the government.

The focus of the government is clear — target high revenue cases. There is also an intent to curb litigation by providing speedy settlement to the taxpayers by providing alternative avenues to reach to a final settlement. And so, three more benches of the Settlement Commission is proposed to be set up this year. However, the government needs to consider enlarging the scope of cases that can be dealt by the Settlement Commissions. The other focus areas of the government include increase in infrastructure growth. The finance minister has introduced tax-free bonds worth . 30,000 crore and has proposed to set up infrastructure debt funds. It has been specifically provided that interest income to a non-resident from infrastructure debt funds will be taxed at 5% (plus applicable surcharge and education cess) against the current tax rate of 20%. This will enable India to attract foreign investments, necessary to keep the growth pace intact.

Another policy measure introduced is to tax the dividend received by domestic companies from its overseas subsidiary at a concessional rate of 15%, allowing for funds to be brought back for further investment . Further, measures to provide higher weighted deduction from 175% to 200% for contribution to National Laboratory, University, etc, largely fits into the Budget theme. The finance minister showed his concern towards the rising generation and circulation of black money in India. The government will notify certain foreign jurisdictions that are reluctant to cooperate in exchange of effective information . It is proposed that transfer pricing regulations would apply on transactions with any person located in such area and no deduction for any expenses arising from the deals shall be allowed unless the taxpayer provides prescribed particulars. This Budget admittedly has not provided big relief to individual taxpayers in terms of absolute tax saving .


A specific focus on senior citizens is a positive and welcome step. However , the question that looms large at a macro level is whether we should be expecting any cash savings from the Budget or we want our policies to be spelt out more clearly in order to provide real tangible benefits through sustained economic and progressive growth. Thus, if in future an individual is not statutorily required to file a return of income and at the same time he is able to obtain refunds within a minimum time, it would be a great boost. An efficient and simpler tax regime will always be preferable. All in all it is a balanced Budget and effective implementation of polices will hold the key. With DTC knocking on the door, one hopes we have a better platform and understanding of the tax laws of India. One question that remained unanswered: when will GST happen.


(The author is joint tax leader at PwC India)

Source: EconomicTimes