fiscal budget and tax policy
TRANSCRIPT
-
8/7/2019 fiscal budget and tax policy
1/34
Annie Patton Annie Patton
Fiscal Budget and TaxFiscal Budget and Tax
Policy 2010Policy 2010
-
8/7/2019 fiscal budget and tax policy
2/34
Annie Patton Annie Patton
Indian Taxation SystemIndian Taxation System
Indian Tax System is characterizedIndian Tax System is characterized
by:by:
A High Dependence on Indirect Taxes.A High Dependence on Indirect Taxes.
Low Average Effective Tax Rates & TaxLow Average Effective Tax Rates & Tax
Productivity.Productivity.
large Taxlarge Taxinduced Distortions oninduced Distortions on
Investments & Financing Decisions.Investments & Financing Decisions.
-
8/7/2019 fiscal budget and tax policy
3/34
Annie Patton Annie Patton
Income TaxIncome Tax
Income Tax is a Tax on the IncIncome Tax is a Tax on the Inc
of an Individual or an Entity.of an Individual or an Entity.
Introduced in India in the year Introduced in India in the year
1860.1860.
Discontinued in the year 1873. Discontinued in the year 1873. Reintroduced in the year 1886 Reintroduced in the year 1886
-
8/7/2019 fiscal budget and tax policy
4/34
Annie Patton Annie Patton
Personal Income TaxPersonal Income Tax
IIncomes from all the Sources are added.ncomes from all the Sources are added.
Certain Rebates, Deductions, Expenditure Certain Rebates, Deductions, Expenditure
etc., on account of Life Insurance, Medietc., on account of Life Insurance, Medi
Insurance, Savings in PPF, etc. are allowed.Insurance, Savings in PPF, etc. are allowed.
Whole Income is divided into Different Slabs Whole Income is divided into Different Slabs
and Taxed on the basis of Slab intoand Taxed on the basis of Slab into
it Falls.it Falls.
Progressive Income Taxation i.e., asProgressive Income Taxation i.e., as
Income Increases, the Rate of Tax alsoIncome Increases, the Rate of Tax also
Increases.Increases.
-
8/7/2019 fiscal budget and tax policy
5/34
Annie Patton Annie Patton
Corporate Income TaxationCorporate Income Taxation
Rationale for the Corporation Tax is thaRationale for the Corporation Tax is tha
Joint Stock Company has a Separate Joint Stock Company has a Separate
& thus should be Taxed separately.& thus should be Taxed separately. Until 1960 Until 196061, Corporations were Taxed in a61, Corporations were Taxed in a
Partial sense.Partial sense.
A Corporation was required to Pay In A Corporation was required to Pay InTax on behalf of Shareholders on DividendsTax on behalf of Shareholders on Dividends
paid to them, & each Shareholder gotpaid to them, & each Shareholder got
Credit to this effectCredit to this effect
-
8/7/2019 fiscal budget and tax policy
6/34
Annie Patton Annie Patton
Corporate TaxCorporate Tax
Since 1960Since 196061, Corporations are being61, Corporations are being
treated as Independent Entities &treated as Independent Entities &
Shareholders are not given any Credit.Shareholders are not given any Credit. Corporations are Taxed at a Flat Rate Corporations are Taxed at a Flat Rate
certain Rebates & Exemptions are alsocertain Rebates & Exemptions are also
provided.provided. Tax Rates are different for Indian Tax Rates are different for Indian
Companies & Foreign CompaniesCompanies & Foreign Companies
-
8/7/2019 fiscal budget and tax policy
7/34
Annie Patton Annie Patton
Taxes on WealthTaxes on Wealth Estate DutyEstate Duty
Taxes which are levied on Wealth &Taxes which are levied on Wealth &
Capital are mainly Estate Duty, Annual TCapital are mainly Estate Duty, Annual T
on Wealth & Gift Tax.on Wealth & Gift Tax.
Estate Duty was First Introduced in the year Estate Duty was First Introduced in the year
1953.1953.
Estate Duty is levied on the Total Pr Estate Duty is levied on the Total Pr
passing to the heirs on the Death of passing to the heirs on the Death of
Person.Person.
Estate Duty was abolished in the year 1985 Estate Duty was abolished in the year 1985
-
8/7/2019 fiscal budget and tax policy
8/34
Annie Patton Annie Patton
Annual Tax on WealthAnnual Tax on Wealth Annual Tax on Wealth was introduced in 1957.Annual Tax on Wealth was introduced in 1957.
Annual Tax was levied on the Wealth Annual Tax was levied on the Wealthas Land, Bonds, Shares, etc. of the People.as Land, Bonds, Shares, etc. of the People.
Certain Types of Properties such as Certain Types of Properties such as
Agricultural Land & funds in ProvidentAgricultural Land & funds in Provident
Account were exempt.Account were exempt.
Wealth Tax was abolished in 1993 on Wealth Tax was abolished in 1993 on
assets except certain specified assets such asassets except certain specified assets such as
Resident Houses, Farm Houses, UrbanResident Houses, Farm Houses, UrbanLand, Jewellery, Bullion, Motor Car, etc.Land, Jewellery, Bullion, Motor Car, etc.
-
8/7/2019 fiscal budget and tax policy
9/34
-
8/7/2019 fiscal budget and tax policy
10/34
Annie Patton Annie Patton
Custom DutiesCustom Duties
Custom Duties are levied on Exports &
Imports. Import Duties are levied on the bas
ad valorem.
In Pre
Tax Reform Period, India hadbecome a country with one of the
highest levels ofCustom Tariffs in the
World. Since 1991, theCustom Duty
Structure was pruned. Maximum Rate ofCustom Duty is 10% now
-
8/7/2019 fiscal budget and tax policy
11/34
-
8/7/2019 fiscal budget and tax policy
12/34
Annie Patton Annie Patton
Excise DutiesExcise Duties Value Added is the differenceValue Added is the difference
between a Firms Revenues & itsbetween a Firms Revenues & itsPayments to other Firms i.e., it is thePayments to other Firms i.e., it is the
Value Difference between Sales &Value Difference between Sales &
Purchased Items.Purchased Items. Under MODVAT, a Manufacturer ca Under MODVAT, a Manufacturer ca
take Credit of Excise Duty paid ontake Credit of Excise Duty paid on
Raw Materials and Components used byRaw Materials and Components used byhim in his Manufacture.him in his Manufacture.
-
8/7/2019 fiscal budget and tax policy
13/34
Annie Patton Annie Patton
Excise DutiesExcise Duties
Since it amounts to Excise Duty Since it amounts to Excise Duty on Additions in Value by eachon Additions in Value by eachManufacturer at each stage, it is calledManufacturer at each stage, it is called
ValueValue
AddedAdded
Tax (VAT).Tax (VAT). MODVAT differs from VAT. MODVAT differs from VAT.
VAT covers the entire value of I VAT covers the entire value of I
where as under MODVAT Duty paidwhere as under MODVAT Duty paidInputs only.Inputs only.
-
8/7/2019 fiscal budget and tax policy
14/34
Annie Patton Annie Patton
Service TaxService Tax Service Tax is a form of IndirecService Tax is a form of Indirec
imposed on Specified Services calledimposed on Specified Services calledTaxable Services.Taxable Services.
It was introduced in the year 19 It was introduced in the year 19
95.95. Service Tax Network has expanded to Service Tax Network has expanded to
cover many Services over the Yearscover many Services over the Years
-
8/7/2019 fiscal budget and tax policy
15/34
Annie Patton Annie Patton
Value Added Tax (VAT)Value Added Tax (VAT)
VAT is a multistage Sales Tax with VAT is a multistage Sales Tax with
for Taxes paid on Business purchases.for Taxes paid on Business purchases. VAT is non VAT is noncascading.cascading.
Tax is levied on Value Addition at e Tax is levied on Value Addition at e
stage of Transaction stage of Transaction Production/Distribution Chain.Production/Distribution Chain.
VAT was introduced in 1999 & was VAT was introduced in 1999 & was
Implemented in April, 2005 in some States.Implemented in April, 2005 in some States.
-
8/7/2019 fiscal budget and tax policy
16/34
Annie Patton Annie Patton
Features of Tax Structure in IndiaFeatures of Tax Structure in India
Tax Revenues (on account of the CeTax Revenues (on account of the Ce
State & Union Territories) form about 1State & Union Territories) form about 1the Total National Income of India (2009the Total National Income of India (2009--10).10).
Among the Third World Countries, India Among the Third World Countries, India
one of the Highest Taxed Countries. Reasonsone of the Highest Taxed Countries. Reasons
Being:Being: Spectacular Rise in Expenditure onSpectacular Rise in Expenditure on
Defense & Other NonDefense & Other NonDevelopmentalDevelopmental
activities.activities. Increase in Expenditure on DevelopmentIncrease in Expenditure on Development
Planning.Planning.
Violation of the Canon of Economy.Violation of the Canon of Economy.
-
8/7/2019 fiscal budget and tax policy
17/34
Annie Patton Annie Patton
Features of Tax Structure in IndiaFeatures of Tax Structure in India
Tax Revenue collected by the Central Tax Revenue collected by the Central
State Governments has increased fromState Governments has increased fromRs.460 cror in 1951Rs.460 cror in 195151 to Rs.6,41079 crore51 to Rs.6,41079 crore
BE in 2009BE in 2009--10.10.
The Ratio of Direct to Indirect Taxes The Ratio of Direct to Indirect Taxes declined from 40:60 in 1950declined from 40:60 in 195051 to 20:8051 to 20:80
in 1990in 199091.91.
Share of Direct Taxes in the Gross Tax Share of Direct Taxes in the Gross Tax
Revenue was 51% in 2009Revenue was 51% in 2009--1010
-
8/7/2019 fiscal budget and tax policy
18/34
Annie Patton Annie Patton
Features of Tax Structure in India
Among the Working Population of 55%Among the Working Population of 55%
only 2.5% is liable to pay Income Tax in India. Asonly 2.5% is liable to pay Income Tax in India. Assuch, Indian Tax Structure relies on a vsuch, Indian Tax Structure relies on a v
Narrow Population Base.Narrow Population Base.
Total Tax Revenue is highly Insufficient Total Tax Revenue is highly Insufficient
meet the Expenditure requirements of themeet the Expenditure requirements of theEconomy.Economy.
Direct Taxes are Progressive, Indirect T Direct Taxes are Progressive, Indirect T
are Differential in Nature.are Differential in Nature. Agriculture Income is wholly exempt fro Agriculture Income is wholly exempt fro
the Incomethe IncomeTax despite the fact that a Tax despite the fact that a
class of Rich Farmers has emerged inclass of Rich Farmers has emerged in
Country which can easily pay Taxes.Country which can easily pay Taxes.
-
8/7/2019 fiscal budget and tax policy
19/34
Annie Patton Annie Patton
Evaluation of Indian Tax SystemEvaluation of Indian Tax System The system of Taxation does not conThe system of Taxation does not con
to Canon of Equity asto Canon of Equity as The Indirect Taxes form a big percentage ofThe Indirect Taxes form a big percentage of
Total Tax Receipts which generally fallTotal Tax Receipts which generally fall
heavily on the Poorer Section of Population.heavily on the Poorer Section of Population.
People with Higher Incomes are EvadingPeople with Higher Incomes are Evading
Tax with the consequent Increase in the Tax with the consequent Increase in the
Burden on people with Lower Income.Burden on people with Lower Income.
Inflexible Taxation System as it largely Inflexible Taxation System as it largelydepends on Urban Incomes & leaves oudepends on Urban Incomes & leaves ou
Agricultural Income.Agricultural Income.
-
8/7/2019 fiscal budget and tax policy
20/34
Annie Patton Annie Patton
Evaluation of Indian TaxEvaluation of Indian Tax
SystemSystem Service Sector which accounts for mor Service Sector which accounts for mor
than 60% of GDP contributes just 9% towardsthan 60% of GDP contributes just 9% towards
Tax Revenues & 1.1% towards GDP.Tax Revenues & 1.1% towards GDP.
The Booth Lingam Committee & Chellia The Booth Lingam Committee & ChelliaCommittee recommended Simplification &Committee recommended Simplification &
Rationalization of Tax System in India.Rationalization of Tax System in India.
The Cost of Tax Collection has increa The Cost of Tax Collection has increafrom Rs.543 crores in 1990from Rs.543 crores in 199091 to more than91 to more than
Rs.3,663 crores in 2006Rs.3,663 crores in 200607.07.
-
8/7/2019 fiscal budget and tax policy
21/34
Annie Patton Annie Patton
Evaluation of Indian Tax SystemEvaluation of Indian Tax System
Evasion & Tax Avoidance are reported Evasion & Tax Avoidance are reported be very High.be very High.
Black Money is generated at the Rate Black Money is generated at the Rate
50% of the countrys GDP.50% of the countrys GDP. Indian Tax System is also accused of Indian Tax System is also accused of
Discouraging Employment.Discouraging Employment.
Distorting Prices.Distorting Prices.
Adversely Affecting Savings.Adversely Affecting Savings.
-
8/7/2019 fiscal budget and tax policy
22/34
Budget Statistics 2010Budget Statistics 2010
CHALLENGESCHALLENGES
TheThe firstfirst challengechallenge isis toto maintainmaintain thethe GDPGDP growthgrowth
raterate toto overover 99%% pp..aa.. thenthen findfind thethe meansmeans toto crosscross
thethe doubledouble digitdigit growthgrowth barrierbarrier
To address the weaknesses in governmentTo address the weaknesses in government
systems, structures and institutions at differentsystems, structures and institutions at different
levels of governance.levels of governance.
-- PRANAB MUKHERJEE,PRANAB MUKHERJEE,
FINANCE MINISTER OF INDIA.FINANCE MINISTER OF INDIA.
-
8/7/2019 fiscal budget and tax policy
23/34
Budget Statistics 2010Budget Statistics 2010
OVERVIEWOVERVIEW OFOF ECONOMYECONOMY
IndiaIndia amongamong thethe firstfirst fewfew countriescountries inin thethe worldworld totoimplementimplement majormajor reformsreforms toto negatenegate falloutfallout ofof thetheglobalglobal slowdownslowdown..
TheThe growthgrowth raterate inin manufacturingmanufacturing sectorsector ininDecemberDecember 20092009 waswas 1818..55 perper centcent thethe highesthighestinin thethe pastpast twotwo decadesdecades..
-
8/7/2019 fiscal budget and tax policy
24/34
OVERVIEW OF THE ECONOMYOVERVIEW OF THE ECONOMY
GrowthGrowth raterate ofof GrossGross DomesticDomestic ProductProduct
dippeddipped fromfrom anan averageaverage ofof overover 99 perper centincentin
thethe previousprevious threethree fiscalfiscal yearsyears toto 66..77 perper centcent
duringduring 20082008--0909..
TheThe structurestructure ofof IndiasIndias economyeconomy changedchanged
overover thethe lastlast tenten yearsyears withwith contributioncontribution ofof
thethe servicesservices sectorsector toto GDPGDP wellwell overover 5050 perpercentcent andand shareshare ofof merchandisetrademerchandisetrade
doublingdoubling toto 3838..99 perper centcent ofof GDPGDP inin 20082008--0909..
-
8/7/2019 fiscal budget and tax policy
25/34
Budget Statistics 2010Budget Statistics 2010
PEOPLESPEOPLES OWNERSHIPOWNERSHIP && IMPROVINGIMPROVING INVESTMENTINVESTMENTENVIRONMENTENVIRONMENT
GovernmentGovernment PlansPlans toto RaiseRaise moremore thanthan RsRs.. 2525,,000000CrsCrs.. throughthrough DisinvestmentDisinvestment ofof PSUsPSUs..
MethodologyMethodology forfor calculationcalculation forfor IndirectIndirect ForeignForeign DirectDirect
InvestmentInvestment inin IndianIndian CompanyCompany hashas beenbeen clarifiedclarified..
GrantingGranting AdditionalAdditional BankingBanking LicensesLicenses toto PrivatePrivateBanksBanks toto diversifydiversify theirtheir operationsoperations andand provideprovide moremore
financialfinancial infrastructureinfrastructure..
-
8/7/2019 fiscal budget and tax policy
26/34
Budget Statistics 2010Budget Statistics 2010
Proposed Laws:Proposed Laws:
Direct Tax Code (DTC) to be implementedDirect Tax Code (DTC) to be implemented
from 1from 1stst April, 2011.April, 2011.
GST to be rolled out from 1GST to be rolled out from 1stst April, 2011.April, 2011.
Introduction of pending Companies Bill, 2009Introduction of pending Companies Bill, 2009
to replace the existing Companies Act, 1956.to replace the existing Companies Act, 1956.
-
8/7/2019 fiscal budget and tax policy
27/34
DIRECT TAXES: Individual (Male)DIRECT TAXES: Individual (Male)
Individual (Female)Individual (Female)
IndividualIndividual--Senior Citizen (Age > 65 Male / Female)Senior Citizen (Age > 65 Male / Female)
TAX RATES REVISED SLAB OLD SLAB
10% Rs. 1.60 L- 5.00 L Rs. 1.60L- 3.00L
20% Rs. 5.01 L- 8.00 L Rs. 3.01 L- 5.00 L
30% Above Rs. 8.00 L Above Rs. 5.00 L
TAX RATES REVISED SLAB OLD SLAB
10% Rs. 1.90 L- 5.00 L Rs. 1.80L- 3.00L
20% Rs. 5.01 L- 8.00 L Rs. 3.01 L- 5.00 L
30% Above Rs. 8.00 L Above Rs. 5.00 L
TAX RATES REVISED SLAB OLD SLAB
10% Rs. 2.40 L- 5.00 L Rs. 2.10L- 3.00L
20% Rs. 5.01 L- 8.00 L Rs. 3.01 L- 5.00 L
30% Above Rs. 8.00 L Above Rs. 5.00 L
-
8/7/2019 fiscal budget and tax policy
28/34
Budget Statistics 2010Budget Statistics 2010
Direct TaxesDirect Taxes (contd.)(contd.)::
TTo boost investment in Tourism, Initial Capitao boost investment in Tourism, Initial CapitaInvestment in TwoInvestment in Two--Star hotels construction isStar hotels construction is
allowed as Deduction from the incomes.allowed as Deduction from the incomes.
Surcharge on Corporate Income Tax has beeSurcharge on Corporate Income Tax has beeReduced to 7.5% from 10%Reduced to 7.5% from 10%
-
8/7/2019 fiscal budget and tax policy
29/34
Budget Statistics 2010Budget Statistics 2010
Expenses on which, TDS is deducted during theExpenses on which, TDS is deducted during theFinancial Year will be allowed as deduction only if TDSFinancial Year will be allowed as deduction only if TDSis paid before due date of filing of Income Tax Return.is paid before due date of filing of Income Tax Return.
Delay in payment of TDS will attract Interest @ 18%Delay in payment of TDS will attract Interest @ 18%p.a. Vs. 12% p.a.p.a. Vs. 12% p.a.
-
8/7/2019 fiscal budget and tax policy
30/34
Budget Statistic 2010Budget Statistic 2010
IINDIRECT TAXES:NDIRECT TAXES:--ExciseExcise
Basic Central Excise Duty on NonBasic Central Excise Duty on Non
Petroleum Products increased from 8% toPetroleum Products increased from 8% to10% Ad Valorem.10% Ad Valorem.
Central Excise Duty on Petrol & DieselCentral Excise Duty on Petrol & Dieselincreased by Rs. 1 per liter.increased by Rs. 1 per liter.
-
8/7/2019 fiscal budget and tax policy
31/34
Budget Statistic 2010Budget Statistic 2010
Proportionate rise in Specific Duty for CementProportionate rise in Specific Duty for Cement
and Cement clinkers.and Cement clinkers.
AdAd--Valorem Duty on Large cars ,Multi UtilityValorem Duty on Large cars ,Multi Utility
Vehicle increased by 2% to 22%.Vehicle increased by 2% to 22%.
-
8/7/2019 fiscal budget and tax policy
32/34
SERVICE TAXSERVICE TAX GENERALGENERAL
Service tax rate retained at 10 percentService tax rate retained at 10 percent
Significant change in conditions relating toSignificant change in conditions relating to
export qualification; no requirement toexport qualification; no requirement to
demonstrate use of services outside Indiademonstrate use of services outside India
Rationalization of refund processesRationalization of refund processes
No penalty to be levied where service tax alongNo penalty to be levied where service tax along
with interest is paid before issuance of showwith interest is paid before issuance of showcause noticecause notice
-
8/7/2019 fiscal budget and tax policy
33/34
SERVICE TAX NEW SERVICES Promoting of a brands (such as celebrityPromoting of a brands (such as celebrity
endorsements)endorsements) Permitting commercial use or exploitation of anyPermitting commercial use or exploitation of any
event; this may include sports, business, socialevent; this may include sports, business, social
and personal eventsand personal events
Copyrights involving use or rights relatedCopyrights involving use or rights related
cinematographic films and sound recordingcinematographic films and sound recording
Individual artistes, composers etc not coveredIndividual artistes, composers etc not covered
Services provided by builders for provision ofServices provided by builders for provision ofpreferential location or development of real estatepreferential location or development of real estate
complexescomplexes
-
8/7/2019 fiscal budget and tax policy
34/34
Thank YouThank You