The+IBS+Times +Analysis+Union+Budget+2009 10

8/14/2019 The+IBS+Times +Analysis+Union+Budget+2009 10

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Special Issue on

Union Budget 2009-10

On 6th July, our Finance Minister Mr. Pranab Mukherjee, presented Union budget 2009-10. The major Highlof Union Budget are as follows-

It is a statement of projection of the government expenditure and receipts over the forthco

fiscal year.


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Notes for Receipts

(1) REVENUE RECEIPTS: It consists of items that do not increase liability or decrease the assets-

Tax Revenue: A compulsory and legal levy on a person by the government

Taxes are of two types: direct and indirect tax.

Direct tax: Like income tax, corporation tax (tax on company profits), property tax, wealth tax, capital gain tare those taxes where the impact and incidence are on the same person. The burden is borne by the same per

whom it is levied. The burden of tax cannot be shifted

Indirect Tax: Like excise duty, sales tax, VAT , custom duties, are those taxes where the impact and the inc

are not at the same point (or person). The burden is not borne by the person on whom it is levied first. Thus o

son initially pays it but the burden is wholly or partially passed on to some other individual who ultimately b

They are also called taxes on expenditure.

Non tax revenue: Any income which is not a compulsory levy by the government. Classification of Non ta

nue is as follows:

(2) CAPITAL RECEIPTS:They are those items that either decrease assets or increase the liabilities

Recoveries of loans: it means the receipt of loans that the government granted in the past. It decreases the

value of the government. Thus it is decrease in assets

Disinvestment: it implies selling of stakes in PSU units of the government. It implies selling of assets.

Borrowing and other liabilities: it implies if government takes loans. It increases the liability of the goverNotes for expenditure:

Revenue expenditure: it implies those expenditure that dont affect the assets or liabilities position of the g

ment. E.g. interests , payments of salaries , general social economic and defense services ,subsidies , grants to

and U.T. and foreign governments

Capital expenditure: it implies that expenditure of the government that either increase the assets or decrease

abilities of the government. E.g. Loans to state and UT , FG etc( increase in assets) and Repayment of loans ( d

of liabilities)

COMMER-

CIAL REVE-

NUE

ADMINISTRATIVE REVENUE INTERESAND DIV

DENDS

It is the incomeof the govern-ment earned bys u p p l y i n ggoods and ser-vices electric-ity , railwayservices etc

It is earned Via performing the administrative functions the gov-ernment earns some revenueFEES: it is the payment earned for rendering servicese.g. license fees , school and college fees etcFINES and PENELTIES: imposed for the infringement of law.FORFEATURE: ceasing of property as a result of non paymentof taxes or etcESCHEATS: acquisition of property of a person who dies with-

out any legal heir.

Governmenceives inton investmmade or granted andearns dividon acquisof shares

company


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GDP forecasted = 5856569 crores

Various deficits:

Fiscal Deficit (FD)= total expenditurerevenue receiptscapital expenditure excluding borrowings

1020838614497(4225 + 1120) = 400996

FD as a percentage of GDP = 400996 / 5856569 * 100 = 6.84%

Revenue deficit (RD) = revenue expenditurerevenue receipts = 897232 - 614497= 282735

Revenue Deficit as a percentage of GDP = 282735 / 5856569 *100 = 4.8%

Primary deficit (PD) = fiscal deficitinterest payments = 400996225511 = 175485

PD as a percentage of GDP = 175485 / 5856569 * 100 = 3%

Impact of Budget on Different Sectors

INFORMATION TECHNOLOGY

Sl BUDGET PROPOSAL IMPACT

1 Abolishment of FBT +ve for the sectorwould reduce

2 Sun-set clause for deduction in respect of export prof-

its under sections 10A and 10B of the Income-tax Act

being extended by one more year i.e. for the financial

year 2010-11.

+ve for export oriented IT companies Infosys,

Mahindra Satyam, and Tech Mahindra etc. but b

more mid-tier companies3 Minimum Alternate Tax (MAT) increased to 15%

from 10%

-ve for the sector - would increase tax out

smaller and Mid tier IT companies , however inin the number of years for carried forward of tax

from 7 years to 10 years would offset some impa

4 On packaged or canned software, Counter Veiling

Duty (CVD) and excise duty exemption to be provided

on the portion of the valuewhich represents the consideration for transfer of the

right to use such software, subject to specified condi-

tions

+ve for Software providers

HOTELS


1 Outlays for Common Wealth Games, 2010 to be

stepped up from Rs.2,112 crore in Interim Budget to

Rs.3,472Crores in regular Budget 2009-10

+ve for tourism and hotel companies in NCR


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EDUCATION


1 Allocation in ICT increased to Rs.900 crore +ve for the overall education sector

2 MAT increased to 15% from 10% -ve would increase tax outgo for companieNIIT, however increase in the number of years fried forward of tax credit from 7 years to 10would offset some impact. No major impact forplayerslike Educomp and Everonn.

3 The overall Plan budget for higher education is to beincreased by Rs 2,000 crore over Interim B.E. 2009-10.

+ve for Everonn, Educomp, Core Projects, NIIT

4 Rs.827 crore allocated for opening one central Univer-sity in each uncovered State. Rs.2,113 crore allocated

for IITs and NITs which includes a provision ofRs.450 crore for new IITs and NITs.

+ve for Educomp, NIIT, Core Projects

MEDIA AND ENTERTAINTMENT


1 Abolishment of Fringe Benefit Tax (FBT) +ve for the sectorwould reduce the operationcompliance issues associated with FBT

2 Customs duty, on LCD Panels for manufacturing ofLCD televisions, to be reduced from 10% to 5%

+ve for Videocon

3 Extension of stimulus package comprising waiver of15% agency commission on DAVP advertisements &a 10% increase in the DAVP rates to the Print Media.

+ve for the sector specially for Print media comlike HT media, DCHL and Jagran Prakashan.

BANKING & FINANCIAL SERVICES


1 No Securities Transaction Tax (STT) on sale/purchase

of shares by NPT

+ve for financial services2 Exemption from service tax (leviable under Banking

and other financial services or under Foreign exchangebroking service) being provided to interbank purchaseand sale of foreign currency between scheduled banks.

+ve for Banks having presence in foreign exctransactions like ICICI Bank, Axis Bank, HDFCSBI, etc

3 Time given to the farmers having more than two hec-tares of land to pay 75 per cent of their overdues un-der Debt Waiver and Debt Relief Scheme extendedfrom 30th June, 2009 to 31st December, 2009.

+ve for PSU Banks as it would lead to defermNPA


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AUTOMOBILES


1 Increase in agriculture credit target by 13% toRs.3,25,000 cr from Rs.2,87,000cr in 2008-09

+ve for the sector - would continue to drive dfor tractors and is a positive for companies like M

2 Allocation to NHAI for the NHDP is stepped up by23%.

+ve for the sectorwould will increase the hinetwork in India and is positive for demand growcommercial vehicles in the long term.

3 Excise duty on petrol driven trucks/ lorries to be re-duced from 20% to 8%. Excise duty on chassis of suchtrucks/lorries to be reduced from 20% + Rs.10000 to 8% +Rs.10000.

+ve Bosch Ltd.

4 Ad valorem duty on vehicles of engine capacity below2000 cc has been unified at Rs. 15,000 per unit

+ve for companies like M&M, Tata Motors, Leyland.

FMCG


1 MAT increased to 15% from 10% -ve for the sector - Dabur India and Godrej ConProducts are currently under MAT that may see verse earning impact.

2 Abolishment of FBT +ve for the sector - companies like HUL, ITC,Dabur India and retail companies like Pantaloonhal retail would benefit

3 Allocation under NREGS increased by 144 per cent toRs.39,100 crore

+ve for the sector

PHARMACEUTICALSSl BUDGET PROPOSAL IMPACT

1 Amendment in IT section - 10AA(7), 100% profit ex-emption effective from FY2011 for business units op-erating from SEZs

+ve for companies like Divis Laboratories andBiocon as they currently operates from their SEZ

2 Abolishment of FBT +ve for the sector

3 MAT increased to 15% from 10% -ve for for companies like Sun Pharma, DisCadila and Biocon

TEXTILE


1 Restoration the rate of 8% central excise duty on man-made fibre & yarn

-ve for companies like Aditya Birla Nuvo, Indo etc

2 Reduction in the basic customs duty from 15% to 10%on wool waste & cotton waste +ve for the sector

3 The 2 % interest subvention on pre-shipment credit toemployment-oriented export sector has been extendedtill March 31, 2010

+ve for the sector

Budget Special


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INFRASTRUCTURE


1 IIFCL to evolve a Takeout financing scheme in con-

sultation with banks to facilitate incremental lending

to infrastructure sector.

+ve for infrastructure companies like HCC, Nag

Construction2 IIFCL will refinance 60% of commercial bank loans

for PPP projects in critical sectors which involves Rs.

1,00,000 crores.

+ve for infrastructure companies.

3 Allocation to NHAI for the NHDP is stepped up by

23%

+ve for companies like Reliance Infra, Gammon

Nagarjuna Constructions, IVRCL,etc.

4 Allocation for Railways increased from Rs.10,800

crore in Interim B.E. 2009-10 to Rs.15,800 crore in

B.E. 2009-10

+ve for companies like BEML, Kalindee Rail

garh Wagons

5 Provision for the project BRIMSTOWA initiated in

2007 and funded through Central Assistance to ad-dress the problem of flooding in Mumbai, enhanced

from Rs.200crore (Interim 2009-10) to Rs.500crore in

(2009-10 BE).

+ve for Mumbai based companies like Reliance

structure, Patel Engineering

6 Allocation for Bharat Nirman increased by 45 per cent

in 2009-10 over B.E. 2008-09.

+ve for the sector

OIL & GAS


1 Extension of the tax holiday under section 80-IB(9), to

the mineral oil & natural gas

+ve for Exploration cos Reliance Industries and

India

2 Blueprint to be developed for long distance gas pipe-

lines leading to a National Gas Grid to facilitate trans-portation of gas across the country

Companies like GAIL, Jindal Saw, Welspun Guj

POWER


1 Reduced the basic customs duty on permanent mag-

nets from 7.5% to 5%

+ve for Suzlon Energy

TELECOM


1 Exemption of 4% CVD, on mobile accessories, parts& components for another 1 year

+ve for telecom companies like RCOM, TTML, Airtel and mobile phone manufacturers.


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Goods and Service Tax (GST)

One of the biggest taxation reforms in India -- the Goods and Service Tax (GST) --is all set to integrate State economies and boost overall growth. GST will create a

single, unified Indian market to make the economy stronger. Finance Minister

Pranab Mukherjee while presenting the Budget on July 6, 2009, said that GST

would come into effect from April 2010.

The implementation of GST will lead to the abolition of other taxes such as Octroi,

Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom license fees,

turnover tax, tax on consumption or sale of electricity, taxes on transportation of

goods and services etc., thus avoiding multiple layers of taxation that currently exist

in India.

What is GST?

Goods and Services Tax -- GST -- is a comprehensive tax levy on manufacture, sale and consumption of goo

services at a national level. Through a tax credit mechanism, this tax is collected on value-added goods and serv

each stage of sale or purchase in the supply chain. The system allows the set-off of GST paid on the procurem

goods and services against the GST which is payable on the supply of goods or services. However, the end con

bears this tax as he is the last person in the supply chain.

Experts say that GST is likely to improve tax collections and boost India's economic development by breaking t

riers between States and integrating India through a uniform tax rate. It is expected to help build a transparent a

ruption-free tax administration. GST will be is levied only at the destination point, and not at various points

manufacturing to retail outlets).

How will it benefit the Centre and the States?

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would p

exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing a

vices.

What are the benefits of GST for individuals and companies?

In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the C

and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to

down. Lower prices will lead to more consumption, thereby helping companies.

What type of GST is proposed for India?

India is planning to implement a dual GST system. Under dual GST, a Central Goods and Services Tax (CGST

State Goods and Services Tax (SGST) will be levied on the taxable value of a transaction.


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Which other nations have a similar tax structure?

Almost 140 countries have already implemented the GST. Most of the countries have a unified GST system

and Canada follow a dual system where GST is levied by both the Union and the State governments.

France was the first country to introduce GST system in 1954.

What will be the rate of GST?

The combined GST rate is being discussed by government. The rate is expected around 14-16 per cent. After t

GST rate is arrived at, the States and the Centre will decide on the CGST and SGST rates. Currently, servi

taxed at 10 per cent and the combined charge indirect taxes on most goods are around 20 per cent.

Will goods and services cost more after this tax comes into force?

The prices are expected to fall in the long term as dealers might pass on the benefits of the reduced tax to consu

Why are some States against GST; will they lose money?

The governments of Madhya Pradesh, Chhattisgarh and Tamil Nadu say that the information technology system

the administrative infrastructure will not be ready by April 2010 to implement GST. States have sought assu

that their existing revenues will be protected. The central government has offered to compensate States in ca

loss in revenues.

Some States fear that if the uniform tax rate is lower than their existing rates, it will hit their tax kitty. The gove

believes that dual GST will lead to better revenue collection for States. However, backward and less-developed

could see a fall in tax collections. GST could see better revenue collection for some States as the consump

goods and services will rise.

What are the items on which GST may not be applied?

Alcohol, tobacco, petroleum products are likely to be out of the GST regime.

Compiled By

Kushal K. Shah (2011 Batch)

Vivek Kumar Bhukania (2011 Ba

Vivek Ganatra (2010 Batch)

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