Could the dream team have delivered a better budget?

01 March 2005

Speaking on the budget proposals 2005-06, K R Girish, partner, RSM & Co said, "The foreign direct investment (FDI) to gross domestic product (GDP) ratio is low at 0.6 per cent compared of several other countries where the ratio is 4 per cent. Similarly were not able to increase the tax: GDP ratio. Similarly there is no mention about labour reforms."

According to him the finance minister has played right with the left (parties). Citing the finance minister's statement that states will be compensated for any revenue loss due to implementation of value added tax (VAT) regime, he wondered where from the central government would find the money for that purpose.

He also added that the tax proposals on fringe benefits would impact the software companies having large number of employees working onsite. "Even loss making companies have to pay fringe benefits tax at 33.66 per cent and detailed procedures have been laid out for tax compliance."

Talking about the corporate tax proposals he said that the effective tax rate as per the proposals is 33.66 per cent as against the earlier rate of 36.5 per cent. "While the corporate tax rate has been reduced by 5 per cent to 30 per cent the surcharge has been increased to 10 per cent from 2.5 per cent. One should factor the reduction in depreciation rates that would impact the manufacturing companies and the increase in the effective rate of dividend distribution tax to 14.03 per cent from 13.07 per cent."

Speaking about the indirect tax proposals, Nihal Kothari, executive director, RSM Advisory Services P Ltd cited the government's pre budget move to bring pharmaceutical products under excise based on maximum retail price (MRP) regime.

According to him while the ambit of service tax has been expanded its administration is being aligned with other provisions of the Income Tax Act by specifying the time limit for compliance and the penalties for non compliance. "Wherever excise duty is not applicable then service tax is imposed."