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Budget Analysis
Budget Analysis
Contd
Limit on tax-free Infrastructure bonds increased to ` 600 billion from ` 300 billion Service tax rates to be increase from 10% to 12% Standard excise duty to increase from 10% to 12% Full exemption of coal imports from custom duty to revive the power sector Qualified Foreign Investors to be allowed access to the corporate bond market
The basic Custom Duty has been reduced on certain Agricultural Equipments. RAJIV GANDHI EQUITY SAVING SCHEME: Encourage the flow of saving in financial instrument and improve the depth of Domestic Capital Market.
POSITIVE IMPACT
55% abatement from the Retail Sale Price enhance to 70%. Excise Duty on mobile phone parts cut steeply from 10% to 2%.
The increase in the excise duty on cars, commercial sectors and two wheelers will be passed on to the consumers Demands for Sedans and Luxury Cars will be hit as the excise duties were hiked to 27% from 22%, while basic custom duty for completely built units of such cars was increased to 75% from 60%
Contd
Hotel Industry
Service tax increases to impact hotels negatively
The reinstatement of service tax to 12% from the earlier rate of 10% will adversely effect hotel players The abatement provided for hotels accommodation has been reduced from 50% to 40% The effective service tax for hotel accommodation will increase to 7.2% from 5% Given the intense competition in the industry, the players will have limited ability to pass on the increase in service tax through higher room rates
Contd
The proposed increase in tax on production of crude oil, to ` 4,500 per tonne from ` 2,500 per tonne This will increase the cost of domestic oil production by $5 to $6 per barrel The governments estimates of oil subsidies for 201112 and 2012-13 seems to be conservative
Contd
Paper Industry
Higher excise duties to pull down margins
Excise duties on paper and paperboard (P&B) and pulp have been increased by 1% The government has also imposed excise duty of 6% on waste paper On the positive side, custom duties on imported waste paper have been removed The impact is negative for P&B players as the impact of the excise duty hikes on raw material and finished goods will outweigh that of custom duties removal on wastepaper
The Union budget has reduced the excise duty on branded apparels and textiles made-ups They have also removed the custom duty on shuttle-less looms Effective excise duty on branded apparels and made-ups has been cut to 3.6% from the earlier 4.5% This, along with lower cotton prices, will stimulate demand The concessional custom duty has now been restricted to the new machineries only
Contd
The budget has announced several measures to improve availability of funds for the infrastructure sector A large portion of these funds are expected to flow into the roads sector At the corporate level, there has been a reduction in the withholding tax on interest payment of external commercial borrowings (ECBs) for the road sector to 5% from 20% This will aid the road developers as their exposure to the ECBs is limited
Contd
Power
Exemption of custom duty on fuel; enhanced fund availability
Exemption of 5% customs duty on thermal coal, natural gas and liquefied natural gas (LNG) will provide relief to the power generators reeling under high fuel costs The budget also enhanced the availability of funds for financing power projects through tax free bonds The proposal of reduction of withholding tax on interest payments on ECBs, from 20% to 5%, will reduce the cost of borrowings for the sector
Contd
Household Appliances
Customs Duty exemption on LCD/LED panels and higher disposable income to benefit industries
Complete exemption of customs duty on LCD/LED panels from 5% in the previous year will lower panel TV prices, thereby driving demand An increase in the income tax exemption limit will raise the disposable income of the salaried class by ` 2,000 annually An additional benefit of upto ` 20,000 would accrued for individuals with income higher than ` 0.8 million These factors will more than offset the 2% point increase in excise duty, thus positively impacting the household appliances industry
Contd
Fertilizers
Fertilizer industry to benefit from cheaper farm credit
Fertilizers demand is set to get a boost on account of cheaper credit availability to farmers The government will provide interest subvention to farmers who make timely payment of farm loans, effectively lowering the interest rates. The reduction in basic customs duty on some water soluble fertilizers may increase their usage, improving revenues and profitability of fertilizers players.
Contd
Construction
Tax-free bonds limit doubled; boost to irrigation sector
The limit for tax-free bonds in the infrastructure sector has been doubled to ` 600 billion for 2012-13 from that in 2011-12 A central body- Irrigation and Water Resource Finance Company- is expected to be set up in 2012-13 to focus on providing finance to the irrigation and water sector The budget has reduced the withholding tax on interest payments of external commercial borrowings for the roads sector to 5% from 20%
Contd
Sugar
No Direct impact from budget, but:
Custom duty on related machineries has been reduced to 2.5% from 7.5% Agriculture support services extended by sugar industry to its cane cultivators would not impose any new tax burden on the cane farmer. Extremely positive for the Sugar Industry and improve the Operating Margins The 100% investment linked deduction provided for setting up and operating a warehousing facility for storage of sugar
Impact of The
Budget on Economy
Economic Analysis
Growth in the service sector Customs duty on Gold is doubled Reduction in STT would reduce transaction cost for mutual funds Tax free infrastructure bonds may continue seeing investors interest Access for QFIs may deepen the debt market in the long run Higher Fiscal deficit could impact interest rate movement
5000 Crore For Small Industries Development Bank Of India 5000 Crore For Ports
BEST THING.
WORST THING.
Farmer benefits & so does infrastructure. Part of your Health check just got tax free. HIV medication will be cheaper.
Conclusion
Budget 2012-13 did not enjoy the positive environment that the previous budget did Inflation has come down a little, but the overall macroeconomic situation remains quite challenging on both the global and domestic front The sharp slippage in fiscal and revenue deficit in 201112 means that fiscal policy can no longer pump-prime the economy The proposed steps to improve access to funding and tax concession will boost investments in the infrastructure sector and minimize constraints The commitment to fully fund the food subsidy but limit the fertilizer and fuel subsidy bill to create fiscal space for investment spending is a right step
Thank You