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Union Budget 2011

Union Budget 2011. By A.V. Vedpuriswar. July 8, 2011. The Budget Lingo : Revenue budget. Revenue budget deals with items of a non capital nature. Revenue receipts are divided into tax and non-tax revenue. Tax revenues include income tax, corporate tax, excise , customs and

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Union Budget 2011

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  1. Union Budget 2011 By A.V. Vedpuriswar July 8, 2011

  2. The Budget Lingo : Revenue budget • Revenue budget deals with items of a non capital nature. • Revenue receipts are divided into • tax and • non-tax revenue. • Tax revenues include • income tax, • corporate tax, • excise, • customs and • other duties • Non-tax revenue, includes • interest on loans and • dividends on investments like PSUs, fees, and • other receipts for government services . • Revenue expenditure is the payment incurred for the normal day-to-day running of government departments. • Revenue expenditure also includes servicing interest on government borrowings, subsidies, etc. • Usually, expenditures that do not create assets, and grants given to state governments and other parties are revenue expenditures.

  3. The Budget lingo : Capital budget • Capital receipts are : • government loans raised from the public, • government borrowings from the Reserve Bank and treasury bills, • loans received from foreign bodies and governments, • divestment of equity holding in public sector enterprises, • funds mobilised by small savings, provident funds, and special deposits. • Capital payments are : • capital expenditure on acquisition of assets like land, buildings, machinery, and equipment, • investments in shares, • loans and advances granted by the central government to state and union territory governments, government companies, corporations and other parties.

  4. Budget Lingo : Non Plan Expenditure • This is generally of a non value adding type. • Non-plan revenue expenditure is accounted for by : • interest payments, • subsidies (mainly on food and fertilisers), • wage and salary payments to government employees, • grants to States and Union Territories governments, • pensions, • police, • economic services in various sectors, • other general services such as tax collection, social services, and grants to foreign governments. • Non-plan capital expenditure mainly includes • defence, • loans to public enterprises, • loans to States, Union Territories and foreign governments.

  5. The Budget at a glance

  6. Break up of revenues/expenses

  7. A graphical view of how the rupee comes and goes

  8. Plan Expenditure

  9. Major non plan expenditure items

  10. Composition of Revenue expenditure

  11. Interest expenditure

  12. Subsidies

  13. Tax Collection

  14. Sources of Tax revenue

  15. Tax revenue as % total tax revenue, GDP

  16. Deficit as % of GDP

  17. Fiscal deficit trends

  18. Structural and cyclical components of Deficit

  19. Government’s market borrowings

  20. Budget highlights (1) • Direct Taxes Code (DTC) proposed to be effective from April 1, 2012. • Areas of divergence with States on proposed Goods and Services Tax (GST) have been narrowed. • To facilitate roll out of GST, Constitution Amendment Bill may be introduced soon. • However, many worry that things may not move so fast.

  21. Budget highlights (2) • Government to move towards direct transfer of cash subsidy to people living BPL in a phased manner for better delivery of kerosene, LPG and fertilisers. • Aadhar will play a crucial role here. • From 1st October, 2011 ten lakhAadhaar numbers will be generated per day.

  22. Budget highlights (3) • Rs 40,000 crore to be raised through disinvestment in 2011-12. • Rs 2,14,000 crore allotted for infrastructure in 2011-12. • This is an increase of 23.3 per cent over 2010-11. • This also amounts to 48.5 per cent of total plan allocation. • Allocation for social sector in 2011-12 (Rs 1,60,887 crore) increased by 17 per cent over current year. • It amounts to 36.4 per cent of total plan allocation.

  23. Budget highlights (4) • Total expenditure proposed at Rs 12,57,729 crore. • Increase of 18.3 per cent in total Plan allocation. • Increase of 10.9 per cent in the Non-plan expenditure. • Fiscal Deficit brought down from 5.5 per cent in BE 2010-11 to 5.1 per cent of GDP in RE 2010-11, 4.6% in 2011-12, 3.5 per cent by 2013-14. • “Effective Revenue Deficit” estimated at 2.3 per cent of GDP for 2010-11 and 1.8 per cent for 2011-12. • Central Government debt estimated at 44.2 per cent of GDP for 2011-12 .

  24. Understanding the Direct Taxes Code (1) • DTC seeks to consolidate and amend the laws relating to income-tax, dividend distribution tax, and wealth tax. • The aim is an efficient, effective, and equitable direct tax system which will facilitate voluntary compliance . • DTC consolidates and integrates all direct tax laws and replaces both the Income Tax Act 1961 and the Wealth Tax Act 1957 with a single legislation. • It simplifies the language of the legislation. • It indicates stability in direct tax rates.

  25. Understanding the Direct Taxes Code (2) • Currently, the rates of tax for a particular year are stipulated in the Finance Act for that relevant year. • Under the Code, all rates of taxes are proposed to be prescribed in Schedules to the Code. • This will obviate the need for an annual finance bill, if no change in the tax rate is proposed. • The Code proposes a corporate tax rate of 30 per cent against the current effective rate of 33.2 per cent. • It raises the exemption limit as well as broadens the tax slabs for personal income tax.

  26. Understanding the Direct Taxes Code (3) • Deduction of up to Rs 1 lakh has been provided for investments in approved provident funds, superannuation funds, and pension funds. • Direct tax rates have been moderated over the last decade and are in line with international norms. • A general anti-avoidance rule assists the tax administration in deterring aggressive tax avoidance. • Such general anti-avoidance rules already form a part of the tax legislation in a number of G-20 countries.

  27. Understanding the Direct Taxes Code (4) • It is proposed to tax non-profit organizations set up for charitable purposes on their surplus (at the rate of 15 per cent), after allowing for accumulation of a specified proportion for creation of assets or for long-term projects, a further carry forward for receipts of the last month of the year, and also after a basic exemption limit of Rs 1 lakh. • Donations to these non-profit organizations will be eligible for tax deduction in the hands of the donor.

  28. Understanding GST • GST is an attempt to rationalise the indirect tax structure. • But the government faces resistance from states which fear a dent in their financial autonomy if GST is implemented. • The introduction of GST needs an amendment to the constitution to empower the centre to tax retail trade, give states governments the power to tax services and for setting up a council for resolving disputes. • At present, the centre can tax services and goods only at the factory gate. • States can tax goods only at the retail level and do not have the power to tax services.

  29. Dealing with deficits (1) • The expected disinvestment proceeds of Rs. 40,000 crores in FY12 and proceeds from the revised fee structure for additional 2G spectrum can provide some relief on the fiscal deficit front. • But relying on these one time sale of national assets to manage our deficits may not be the right approach. • There is no clear intent to manage expenses to bring the structural deficit under control.

  30. Dealing with deficits (2) • The government must undertake genuine reforms to curtail its bureaucracy spend and subsidy regime. • Out of the projected government expenditure in fiscal 2011 of about 11 lakhcrore rupees, 40 percent went to pay government salaries, 22 percent to interest on debt and about 10 percent to subsidies. • This left a mere 30 % for the nation of which 16 % is alocated for defence and 14 % for infrastructure.

  31. Government borrowing • The public debt which is almost at 75 % of GDP, with almost a third of the revenues required to service its cost, severely limits the government’s fiscal flexibility. • Government borrowing needs which could be about 435 lakhcrore rupees combined with upward pressure on interest rates have made it difficult to push credit growth. • Consistently negative real interest rates have made deposits accumulation slower. • In the long run, this could affect our credit ratings making access to cheaper global capital difficult.

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