A Fine Balance: Sachdev

This budget has, in contrast to most of the past budgets, been less of a surprise. In the area of taxation, the changes have been by and large minor and follow the path of long term fiscal policies. These are two clear macroeconomic positives, which come out of the budget.These are, the reduction in the revenue and fiscal deficit percentage, both in the current year against the target and the anticipated reduction next year. Further, one of the biggest problems until now was the low tax to GDP ratio; this number has gone up in the current year and is anticipated to further go up next year. However, the tricks lies in managing the expenditures which will be challenging given the new programs like the Rural Employment Guarantee scheme etc,.

The budget meets some key demands of the mutual funds industry, such as enhancement in the ceiling on aggregate investment by mutual funds in overseas instruments from US$ 1 billion to US$ 2 billion and removal of the requirement of 10 % reciprocal share holding in Listed Indian Companies. Also, another step in the positive direction has been allowing mutual funds to trade on the NDS - Order Matching system and providing equal treatment for close ended funds in the matter of dividend distribution tax. Hopefully, the actual announcements regarding these will be made shortly. The hike in service tax, from 10% to 12% will however have a negative impact on Mutual Funds / Asset Management Companies. The hike in the securities transaction tax was somewhat anticipated by the markets and is sentimental negative.

Fringe Benefit Tax (FBT) continues with a few changes. The exemption to contribution by an employer to an approved superannuation fund upto Rs. 100,000 per year per employee will benefit a large section of salaried employees, as employees, as employers will begin to consider providing / enhancing this retirement benefit.

The author is Sanjay Sachdev, MD & CEO, Principal PNB AMC.

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