Union Budget 2015-16: Money should come from taxpayer compliance, surcharges

Finance minister Arun Jaitley's tax proposals fail to explain the huge giveaways to corporates at a time when the government's tax revenue collections, both direct and indirect, continue to fall.

And, it now seems that much of the government's revenues should come from better compliance by the taxpayer and the additional revenue from extended surcharges on tax rates. 

Jaitley said, ''a very important dimension to our tax administration is the fight against the scourge of black money.''

But, at the same time, he said, the government has been making every effort in the last nine months to foster a stable taxation policy and non-adversarial tax administration.

He also said that the rate of corporate tax is proposed to be reduced from 30 per cent to 25 per cent over the next four years. ''This will lead to higher level of investment, higher growth and more jobs,'' the finance minister said.

While the finance minister proposed no changes in the rate of personal income tax and rate of tax for companies in respect of income earned in the financial year 2015-16 (assessable in assessment year 2016-17), he proposed to levy a 12 per cent surcharge on individuals, HUFs, AOPs, BOIs, artificial juridical persons, firms, cooperative societies and local authorities having income exceeding Rs1 crore.

Surcharge in the case of domestic companies having income exceeding Rs1 crore and up to Rs10 crore is proposed to be levied at 7 per cent and surcharge at 12 per cent is proposed to be levied on domestic companies having income exceeding Rs10 crore.

In the case of foreign companies, he proposed the surcharge would continue to be levied at 2 per cent if the income exceeded Rs1 crore and was up to Rs10 crore, and at 5 per cent if the income exceeded Rs10 crore.

The finance minister also proposed to levy a 12-per cent surcharge as against the current rate of 10 per cent on additional income tax payable by companies on distribution of dividends and buyback of shares, or by mutual funds and securitisation trusts on distribution of income.

The education cess on income tax at 2 per cent for fulfillment of the commitment of the government to provide and finance universalised quality based education and 1 per cent of additional surcharge called 'Secondary and Higher Education Cess' on tax and surcharge is proposed to be continued for the financial year 2015-16 for all taxpayers, the minister said.

Jaitley also laid great hope on the proposed goods and services tax (GST) introduced in the last session of Parliament, saying it would play a transformative role in the way the economy functions. However, he said, this transformative piece of legislation in indirect taxation needs to be matched with transformative measures in direct taxation.

At the same time, Jitley proposed a tax 'pass through' to be allowed to both Category-1 and Category-2 alternative investment funds so that tax is levied on the investors in these funds and not on the funds per se.

To rationalise the capital gain regime for the sponsors exiting at the time of listing of the units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) he proposed payment of Securities Transaction Tax (STT).

Jaitley proposed to modify the norm Permanent Establishment (PE) to encourage fund managers to relocate to India. The finance minister said that General Anti Avoidance Rule (GAAR) will be deferred by two years. It will apply to investments made on or after 1 April 2017, when implemented.

In order to facilitate young entrepreneurs, the rate of income tax on royalty and fees for technical services will be reduced from 25 per cent to 10 per cent. To generate greater employment opportunities the benefit of deduction for employment of new regular workman to all business entities will be extended. The eligibility threshold of minimum 100 regular workmen will be reduced to 50, he said.

Recognising the importance of indirect taxes in the context of promotion of domestic manufacturing and 'Make in India', the finance minister said basic custom duty on certain inputs, raw materials, intermediates and components in 22 items is proposed to be reduced to minimise the impact of duty evasion.

All goods except populated printed circuit boards for use in manufacture of ITA bound items are proposed to be exempted from SAD. Subject to actual user condition SAD will be reduced on import of certain other imports and raw materials.

In order to rationalise the MAT provisions for FIIs, profits corresponding to their income from capital gains on transactions in securities which are liable to tax at a lower rate, shall not be subject to MAT, Jaitley said.

Yet, he said, taxation is an instrument of social and economic engineering as it helps the government to provide education, healthcare, housing and other basic facilities to the people to improve their quality of life and to address the problems of poverty, unemployment and slow development.