Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Economy

Absent in Budget 2007

One of the biggest positives in Budget 2007 was the lack of negative news that was expected, and did not happen.

No “EET” regime
I had earlier reported that the finance ministry is actively considering taxing ELSS schemes and other investment exemptions at the time of exit, meaning when you sell such investments. This was the EET regime (Exempt on investment, Exempt on accrual, Taxed on exit) Fortunately for investors, the EET regime is not in this time. So if you invest in tax savings schemes, you will not be taxed on exit, as no change has been made to this policy.

No increase in service tax
The FM was expected to increase service tax to 15%, to augment revenues. Fortunately this has not been done; but I think the rationale for avoiding this was the fact that service tax is applicable to a number of people and increasing this tax would have increased inflation further.

No change in STT and capital gains taxes
Securities Transaction tax (STT) is interesting – a small levy on your capital market transactions that allows you to claim lower capital gains taxes. The FM has not tampered with this setup, meaning you will continue to pay lower taxes for investment gains in shares or mutual funds. (It was expected that the short term capital gains taxes would increase, and STT would be raised)

No service tax for some sectors
Some sectors that were expected to be added to the service tax regime are not there – for instance media artists (like TV actors) were supposed to be added as service providers and taxed accordingly. That service tax would have negatively impacted media companies like Adlabs, Zee TV, TV 18, TV Today, Balaji Telefilms etc., but there is no such change.

Some expected positives were also absent from the budget, which would have been very nice.

No reduction in taxes
Apart from some minor tinkering, the tax rates stay largely the same. The lack of an EET regime has probably meant that personal tax rates could not be reduced. But the FM didn’t reduce the corporate tax rate either, as was expected, or even remove the 10% surcharge introduced last year. (Other than for companies less than 1 crore – which won’t affect you much unless you own a small company)

No opening up of banking sector
The banking industry was supposed to be opened up for foreign acquisitions – something a number of analysts, news channels and others had reported. This hasn’t happened, meaning that banks can’t be acquired by deep pocketed foreign banks, and therefore the sector does not have a positive impact.

No serious cut in petrol duties
A way to counter inflation would have been to pare petrol prices through reduction of duties. The finance minister has reduced duty from 8 to 6% but that’s a very very small measure, and if you consider the total taxes on petrol and diesel they add up to over 30%. Some more could have been done, and inflation would have been arrested faster. Even now, the onus of passing the duty cuton to the customer is left with the oil companies, which aren’t going to want to do this.

  • arul says:

    >Hi Deepak,

    Congrats on becoming a father ! Hope you get used to sleepless nights and are becoming an expert in changing the diaphers !! But, the trouble is worth a million bucks, and watching your son grow up is the best pleaure one can have.

    Glad that you have become active again. Your blog is the first I open everyday, and I look forward to your postings.

    I agree with you that the budget was a good one and the fall in sensex was only sentimental and shortlived. I invested heavily during the last two days and I think, the stategy was good seeing the sensex today.

    Hope to see your posting regularly and I will be sharing my views too.

    Arul Selvan