The Union Budget 2012-13: Economic & Direct Tax Implications

By Minoo R. Shroff, Kanu H. Doshi

Summary

This Forum of Free Enterprise booklet analyses the 2012-13 Union Budget in two parts. Part I, ‘Economic Implications’ by Minoo R. Shroff, reads the Budget as a missed opportunity: it argues that, against high expectations and a difficult external and domestic environment, the Finance Minister ‘could have been bolder’ and that the Budget failed to create an enabling environment for renewal of growth. Shroff marshals a stern report card for 2011-12 — growth of 6.9 per cent against a projected 8.5, inflation of 8.5 per cent, a fiscal deficit of 5.9 per cent and a current-account deficit of 3.6 per cent — and attributes India’s underperformance to a crisis of leadership and governance rather than to any lack of entrepreneurial energy.

In the rendered pages, Shroff’s argument ranges over the collapse in the savings rate from its 2004-2007 peak, weak agricultural and industrial growth, understated subsidies (officially 2 per cent of GDP but, in his estimate, closer to Rs 3,00,000 crore), the deferral of GST, crony capitalism in real estate and natural resources, and a judicial system he calls ‘moribund’. His verdict is that economic reform alone is insufficient: ‘Economic reforms so far have indeed created a mini-miracle. Non-Governance needs a miracle.’

Part II, ‘Direct Tax Implications’ (attributable to Kanu H. Doshi), turns to the Finance Bill’s tax provisions: revised income-tax rate tables for AY 2013-14 across individuals, firms, co-operative societies and domestic and foreign companies; the non-extension of the section 80CCF infrastructure-bond deduction; the rationalised definition of demerger under section 2(19AA); and — most consequentially — the retrospectively-amended section 9(1)(i) making offshore share transfers taxable, a direct legislative response to the Supreme Court’s Vodafone ruling. The rendered pages run through the transfer-pricing provisions (arm’s-length price under section 92C, the tolerance band reduced to 3 per cent, and the Transfer Pricing Officer’s expanded role). The booklet’s remaining pages and colophon were not in the rendered set.

Key points

• Two-part FFE booklet on the 2012-13 Union Budget: Part I ‘Economic Implications’ by Minoo R. Shroff, Part II ‘Direct Tax Implications’ by Kanu H. Doshi.

• Shroff judges the Budget a missed opportunity that failed to create an enabling environment for growth despite high expectations.

• Cites a 2011-12 report card of below-par performance: 6.9% growth vs 8.5% projected, 8.5% inflation, 5.9% fiscal deficit, 3.6% current-account deficit.

• Diagnoses India’s problem as a crisis of leadership and governance rather than a deficit of entrepreneurial energy.

• Argues official subsidies (2% of GDP) are grossly understated, with implicit state subsidies pushing the true figure toward Rs 3,00,000 crore.

• Part II details revised income-tax rate tables for AY 2013-14, non-extension of the s.80CCF infrastructure-bond deduction, and a rationalised demerger definition.

• Covers the retrospective amendment of s.9(1)(i) to tax offshore share transfers — a legislative response to the Supreme Court’s Vodafone ruling.

• Rendered pages run through transfer-pricing provisions (arm’s-length price, tolerance band cut to 3%); the colophon and tail pages were not rendered.

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