FM Arun Jaitley has limited manoeuvring space after GST

Manoeuvring space for Jaitley though is limited, partly due to the fact that decisions regarding GST are being made by the GST Council.

It is meet and proper that interim Budgets, often unveiled by outgoing governments, should be low-key affairs sans big-bang announcements of new schemes or major tax changes that are associated with regular full-year Budgets. However, this principle is more observed in breach than observance.

As he rises to present an interim Budget on February 1, finance minister Arun Jaitley has quite a few precedents of poll-related bonanza his predecessors had rolled out in the guise of having to stimulate the economy or provide a road map for future. He is likely to take a leaf out of their books to unveil a few measures including a fiscally costly income support scheme for farmers and outline his government’s vision for a second term it ostensibly is confident of.

Jaitley’s party colleague Jaswant Singh — who presented the interim Budget for 2004-05 in the Vajpayee government — departed from the established conventions the most among finance ministers in the past two decades or so, with utmost subtlety. He didn’t seek to amend the Income Tax Act but built a slew of incentives into extant schemes in his speech. Pranab Mukherjee — the architect of the 2009-10 interim Budget — remained a man of traditions and refrained from declaring any new tax proposal, just like Manmohan Singh in 1996-97. But P Chidambaram, who presented the 2014-15 interim Budget, cut excise duties on a number of items — including capital goods and consumer goods like cars — on grounds that economic conditions demanded interventions that “cannot wait for the regular Budget”.

Presenting the vote-on-account ahead of the 2004 polls, Jaswant Singh announced an extension of deadline for fiscal benefits to new power projects from 2006 to 2012. He proposed to extend by three years the exemption from long-term capital gains tax to listed equities acquired on or after March 1, 2003. To woo farmers, he exempted them from paying taxes on capital gains from the government’s acquisition of farm land. “There should also be no deduction of tax at source on the interest earned on enhanced compensation for acquisition of such land,” he announced.

In contrast, Manmohan Singh, after presenting his government’s vision for national health insurance, rural housing, poverty alleviation etc in 1996, said: “However, constitutional propriety demands that these programmes, involving a mix of both tax and expenditure policies, are worked out by the government which will come into office after the forthcoming elections to the Lok Sabha. The interim Budget for 1996-97 therefore does not include any new programmes.”

The 2009-10 interim Budget by Mukherjee — who became the finance minister following Chidambaram’s shift to the home ministry in the aftermath of Mumbai attacks in November 2008—was, however, remarkable in another aspect: He was unusually candid in presenting a stark picture of the government’s inability to stick to fiscal discipline. Fiscal deficit had worsened to 6% of GDP in 2008-09, against the budgetted target of just 2.5%. Before the interim Budget, Mukherjee, however, had announced a raft of stimulus measures worth about Rs 40,000 crore, including across-the-board excise duty cuts (except petroleum products) in December 2008 to prop up the economy following the global financial crisis.

In 2014, Chidambaram didn’t announce any new scheme ahead of polls but cut excise duty in several capital and consumer non-durables to 10% from 12%. The factory gate tax was reduced from 12% to 8% on small cars, two-wheelers and commercial vehicles. The central excise on SUVs was lowered from 30% to 24%. These tax cuts were meant for the first quarter of 2014-15. To encourage domestic production of mobile handsets, he restructured the excise rate at 6% with CENVAT credit or 1% without CENVAT credit. He also announced that the government has accepted one-rank-one-pension for armed forces but allocated only Rs 500 crore.

Pronab Sen, former chairman of the National Statistical Commission, said: “Both propriety and established principles suggest that the government of the day can’t introduce a new expenditure scheme nor can it effect changes to direct tax rates while presenting an interim Budget. However, it can tweak around existing schemes and indirect taxes.” While the GST Council is now deciding on GST rates, the government can make changes to other indirect taxes like customs duties, if it so wants. Existing farm schemes can also be suitably altered within this broader principle, he added.

The manoeuvring space for Jaitley may have been limited, partly due to the fact that decisions regarding GST are being made by the GST Council. He, however, seems poised to alter various extant agricultural schemes to provide greater support to farmers to help assuage their pains ahead of the polls. He may also choose to present a new fiscal road map, having already revised the target last year. If he does these, he can’t be accused of breaching conventions. And if he decides to announce steps beyond these and build several incentives into current schemes, including on direct taxes, to woo voters, he will still have the precedent of Jaswant Singh’s Budget to cite.

Source- Financial Express.

The post FM Arun Jaitley has limited manoeuvring space after GST appeared first on GST Station.

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