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SATURDAY, 17 MARCH 2012

UNION
BUDGET 2012-2013

34

51

10.1
TAX-GDP RATIO

INTEREST PAYMENTS rose from 30% of revenue receipts in 2010-11 to 36% in 2011-12 LACK OF SPECIFICS on how the cuts in subsidies will be achieved and when big reform bills could pass Parliament

7.6% GDP GROWTH and 6.4% ination rate assumed for 2012-13 PROMISE TO cut subsidy by 12%, and keep scal decit to 5.1% of GDP; similar intent was expressed last year

RISE IN SERVICE TAX

revenue beat 19% growth projection

HIGHER SUBSIDY BILL

than was estimated for the year 2011-12

partly recovered from the low of 2009

NEITHER POPULIST NOR REFORMIST Some token gifts to taxpayers & investors, but the budget lacks road map for fiscal consolidation Sensex gives a 209-point thumbs-down

On Budget Day, Sachin Scores

FM Plays Safe on a Flat Pitch
BUDGET RATING

what it means for ...

Investor
LOWER STT, but the benet will be offset by higher service tax that brokers collect from investors BUYING GOLD & selling property to get costlier with tax cut at source

SWAMINATHAN S A AIYAR

LORD, GIVE US FISCAL DIScipline, but not yet. The 2012-13 Budget pledged to cut fiscal deficit from 5.9% this year to 5.1% next year, but lacked any road map to show when or how in the coming year subsidies on oil, fertilisers and food would be checked. Finance Minister Pranab Mukherjee explained in a post-budget interview that he has to take other parties along, and for this process he could offer no deadlines or guarantees. So, although the finance minister has spoken loud and clear, Mamata Banerjee may have the last word. Unsurprisingly, the Sensex fell 209 points. Aiming to raise GDP growth to 7.6% along with fiscal consolidation, the budget seeks to raise an additional `40,000 crore in fresh taxes. So, this was definitely not an election budget. Mukherjee clearly believes the government will last a full term, or at least long enough to present another budget in 2013, containing the usual election giveaways. The budget increased service and excise tax by 2%, raised the import duty on precious metals, including gold, raised the income-tax exemption from `1.8 lakh to `2 lakh while expanding each tax slab, promised disinvestment worth `30,000 crore, and receipt of `40,000 crore from the sale of telecom spectrum. For service tax, a short negative list was introduced to expand the tax net. The fineprint shows that first class and air-conditioned fares will now be subject to service tax. Mamata Banerjee may be furious when she finds out. The Finance Bill includes 17 services in the negative list, which will not be taxed. This implies the taxation of all others, including highly-sensitive services such as broadcasting, legal

SAVERS YET to open demat a/c have incentive to invest `50k for 3 years in stocks for tax break
PAGES 2-9

PM SPEAKS TO ETS SWAMI

Consumer
SPEND AT least 2% more on almost every service you consumeboth rate and base of service tax hiked
HEADLINE OF THE CENTURY On a day when Pranab Mukherjee said his budget wont make headlines, Sachin Tendulkar made the biggest headline by scoring his 100th ton PAGE 24

We have to bite the bullet on subsidies. There is no other way

PAGE 20

HIGHER EXCISE duty to raise prices of products ranging from cigarettes to cars SHARPER INCREASES in petrol and diesel prices almost certain
PAGE 10

INTERVIEW
PRANAB MUKHERJEE
FM says nobody wants mid-term elections
PAGE 20
services, hospitals and other health services. If this is confirmed, the chorus of protests will become deafening. Mukherjee said the central debt-GDP ratio would fall to 45% by end 2012-13 against the Finance Commissions target of 50.5%. He refrained from saying the main reason for this was high inflation, which had eroded the real value of old debt. The budget last year projected explicit subsidies at 1.6% of GDP, but the revised estimate is 2.4% despite the postponement of several payments to oil and fertiliser companies. Mukherjee said in 2012-13 he will reduce explicit subsidies to 1.9% of GDP, and further to 1.75% in three years.
Deficit Target Difficult 20

ECB Tonic for Power & Aviation

But raising money wont be easy
RUCHIR A ROY & R ACHITA PR ASAD
MUMBAI

Some Relief, but Killer Tax Takes it All

I must be cruel only to be kind. Quoting Shakespeares Hamlet, Pranab Mukherjee justified his proposals to raise tax rates and expand the tax base. Sure he put more money in one pocket by raising exemption limit, tweaking slabs and by allowing taxfree interest on savings bank accounts, but he took away much more from another by raising the service tax rate to 12% from 10% and applying it on many more services

Taxpayer
SAVE UP to `2,000 a month on income tax if your tax bracket is 20% or 30% TAX-FREE INTEREST on savings bank account (up to `10,000 a year) to save money and hassle EXECUTIVE HEALTH check of up to `5,000 deductible for income tax
PAGE 11

YOU ARE RICHER BY

BUT SERVICE TAX TAKES IT AWAY

`2,060
If you pay 10% tax

Opinion

Pages 12, 13

SUNIL MITTAL

MUKESH AMBANI

DEEPAK PAREKH

YASHWANT SINHA

AKHILESH YADAV

RUCHIR SHARMA

FOR ITS SIGNATURE EDITION, ET commissioned the biggest bylines in advertising to create visuals on how they see India in the midst of a global slowdown. Inside, dear reader, Piyush Pandey, R Balki, Prasoon Joshi, Bobby Pawar, Josy Paul, Agnello Dias & KV Sridhar work magic for you. ENJOY!

THE GOVERNMENT HAS thrown a lifeline to cashstrapped power and aviation companies by letting them borrow overseas, but lenders are unlikely to fall over themselves to lend to these firms given their stretched finances and lack of policy clarity . The government will allow part financing of power companies rupee loans through overseas debt, the first time such external commercial borrowings (ECBs) have been permitted. It will also permit airlines to raise $1 billion in ECBs for a year to fund working capital needs. But experts say raising money overseas will not be easy . Problems relating to fuel linkages and health of power distribution companies need to be resolved to ease flow of funds, said A Subbarao, finance chief of GMR Group, which builds roads, airports and utilities. Parthasarthy Mukherjee, president of treasury at Axis Bank, said They will be very lucky to get anything at all. European banks, the biggest inter national lenders to Indian firms, are turning inward due to the Eurozones financial troubles. Global investors are also wary of investing in Indian infrastructure because of policy instability and high incidence of bad loans. I dont rule out the possibility of a few odd cases, but it wont be easy said Mukherjee. ,

You will pay 2% higher tax on your mobile bill, hotel stay, under-construction house, and many more services You will now have to shell out 12% service tax on AC and first-class train travel; film actors also in the net From just 3 services in 199495, the tax is now imposed on several hundreds; revenue up from `400 crore to `95,000 crore

`22,660
If you are in the 20% or higher tax slab

Economy
ONE MORE step towards DTC and GSTthe two big tax reforms that will transform the economy 10 BIG-TICKET bills and amendments to be moved in the Budget session BIG BOOST to public and private investments in infrastructure
PAGES 14-15

Vodafone may have to Face Pranabs Doosra

Budget proposes law that could overturn SC ruling in tax case
BODHISATVA GANGULI & DEEPALI GUPTA
MUMBAI

THE BUDGET HAS PROPOSED LEGISLAtion to overturn a landmark Supreme Court ruling in favour of UK-based Vodafone Plc, a move that could bring in more than $2 billion (`10,000 crore) of revenues but shock foreign investors who have been vociferously complaining about lack of certainty in the way rules are applied. The legislative changes, essentially tweaks in language asserting the states right to retroactively (from April 1, 1962) tax cross-borders share sales in which the underlying asset is located in India, could impact companies such as AT&T and GE that have carried out transactions in which a significant part of the assets is in India. The budget seeks to achieve its aim by an explanation that appears designed to

chip away at the foundations of the SCs January 21 ruling, which had said the UKbased telecom giant would not have to pay tax on its purchase of the India business of Hutchison Whampoa. Our assessment is that total impact of such cases would have been to the tune of `35,000-40,000 crore, Pranab says Revenue Secretary RS Gujral he was only told reporters. following SC The budget clarified definisuggestion to tions of property and change the transfer as the courts interlaw to tax pretation was not to the liking such deals of the tax department. It also made it clear that the buyer would have to withhold tax, seemingly to get around a part of the ruling that had pointed out that the tax ought to have been levied on the seller.
Experts Raise Questions 20

Business
GREATER SCRUTINY of tax accounts to minimise tax avoidance EASIER IPO guidelines to help smaller companies raise money at lower cost GREATER ACCESS TO FOREIGN funds through borrowings (ECB) and inows (QI)
PAGES 16-19