Mar 16, 2012

Crisp Summary of Union Budget 2012

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The Hon’ble Finance Minister Shri Pranab Mukherjee on 16.03.2012 presented the Union Budget 2012. During the Year, as the Growth moderated and fiscal deficit widened; the Minister admitted that the overall performance has been disappointing but also attributed part of it to the Global crisis, domestic inflationary pressures and weak industrial growth. It is maintained that pace of reforms needs acceleration and tough steps needs to be taken for improving macroeconomic environment and strengthen domestic growth drivers. The 12th Five Year Plan aims addressing the following- Domestic Growth, Private investment, Removal of supply bottlenecks in Agriculture, Energy & Transport, Malnutrition problem and better Governance and tackling problem of Black Money and corruption.
The Budget 2012 proposed certain limited amendments in Direct Tax Laws. However, increase in Indirect Taxes has been made to pave way for the big legislation of Goods and Services Tax (GST) convergence and also for reducing the Fiscal deficit. Some steps like introduction of GAAR have been taken in direction of movement towards DTC and eradication of Black Money and some serious retrospective amendments have also been proposed by this Budget.
Our Comments
Though the Budget 2012-13 has not tried to make any big reforms but at the same time, it has shifted focus from controlling Inflation to ensuring Growth with Fiscal consolidation. Few Important steps in this direction have been taken in both Direct and Indirect Tax sphere by introducing provisions of GAAR(existing in DTC) early to curb Direct Tax avoidance and by increasing the Service Tax/Excise Duty rates and bring Service Tax under Negative list to align it with proposed GST and make things easy. Impetus has also been given to Capital Markets by reducing STT by 20% and by bringing the E-IPO concept for wider participation in smaller towns. Relaxation in ECB norms would provide some support to the Corporate Sectors mainly Infrastructure, Housing, Power & Coal and Transport and hopes of FDI in Aviation and Multi-Brand Retail would keep these sectors optimistic. To conclude, how much out of this gets delivered in timely manner is actually what would decide the fate of the Government and India Inc.
However in our view, the Retrospective amendments to Section 9(1)(i) for Taxing Indirect Transfer of Assets in India would see a lot of further litigation, more so as it recently got settled by the Supreme Court in Vodafone matter and if enacted, as such it may impact the Investment climate in India.
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