Budget 2016: Budget all about appeasing small tax payers, says Ashok Wadhwa

Finance Minister Arun Jaitley has emphasized on manufacturing in India and start-ups majorly as far as tax is concerned, says Ashok Wadhwa, Group CEO at Ambit Holdings. The 25 percent corporate tax for new manufacturing companies without any tax exemptions clearly indicates defining course for tax rate to come down to 25 percent in future, Wadhwa says. This Budget is all about appeasing smaller tax payers, which the government has managed to do. The government could have provided for exemptions in minimum alternate tax (MAT), he adds. The no large cuts for large companies are understandable considering the pressure from Pay Commission, OROP and rural sector. Below is the verbatim transcript.Udayan: Just sum it up for us because from an individual perspective lot of new taxes have come in and from a corporate perspective you haven’t got for the large companies that 1 percent cut that one was expecting the start of this year. How do you read it for the individual tax payer and for the corporate?Wadhwa: Let us start for the corporate tax payers first. I think there is emphasis on his two big mantras – the Prime Minister’s two big mantras which is manufacture in India and startups. For both, I thought that the clever scheme of saying the new manufacturing companies that begin business after April 1st 2016 can opt for a straight 25 percent tax provided they don’t link it, is just not a clever way of introducing the lower tax rate, but it is also a very clear emphasis that I intend to bring the tax rate down to 25 percent. If one new class of companies has been permitted to start with 25 percent it pretty much gives a good roadway ahead for everybody else to say he is clearly defining that in due course 25 percent will be the tax rate. So, that is good news. He has also brought in three out of five years subject to payment of minimum alternate tax (MAT) I heard. I haven’t seen the fine print but I heard subject to payment of MAT. I didn’t understand that because he should have really provided a full exemption three out of five years for startups. So, both those broad themes have been correctly emphasized. No cut for large companies but if he is going to spend Rs 1.3 trillion between one pension one pay and 7th pay commission and he has another Rs 1.9 trillion of extra expenditure coming on rural he has to show some collections. We are assuming that there will be a 17 percent rise in collection. Now part of that 0.2 percent comes out of what he has showed as mathematics. He has also announced in amnesty scheme which is clever and good for a long time we have all been wanting an amnesty scheme and historically amnesty scheme have shown that he can collect anything between 0.2 to 0.8 percent in the amnesty scheme itself. So, that could be a very goof fillip apart from clearing litigation. On the personal side I think thankfully he has not brought in the long-term capital gains tax we were all worried about. However, he has brought in a distribution tax. What he had done is, he has set higher tax payer should be charged more so 10 percent more tax for those who earn more than Rs 10 lakhs. On individual taxes he has brought in lots of individual concessions. So, effectively lower tax payers in the individual bracket will benefit from those concessions. Also he has not increased the threshold itself, so overall a decently balanced Budget from a tax perspective for sure.Sonia: There are some deductions to rent payers under the 80G that has been increased from Rs 24,000 to Rs 60,000. There are some more tax rebates for rent payers etc, how would you react to all of that and does that really help in terms of increasing the demand?Wadhwa: For small tax payers if you thing about what he has done with the amount of money he has allocating towards the rural sector and then all the benefits that he is providing to the smaller sector and I would argue that this looks like a Budget where the government was going to go to the election in the next 12 or 18 months. He has to appease the smaller tax payer and he has done that. He has done that without necessarily compromising at the cost of the bigger tax payer except as I said the two changes which he has made one on the dividend distribution tax which as I said, I know it sounds harsh but it isn’t unfair. If you think about it, why should a tax payer whose tax bracket is 10 percent and whose tax bracket is 35 percent pay same amount of tax when dividend gets distributed. Watch videos for more.