An Unimaginable Spectre

In less than a week after the BJP government’s third budget, the murmurs among one of its primary banks of endo­rsers—the corporate sector—have grown to loud whispers of discontent. The writing is on the wall: the corporate sector is annoyed. Though on the surface, the pervasive response is that the budget is good as the country needs to develop rural India, many industrialists who spoke to Outlook say that they feel they have been largely neglected in the budget and many of its proposals are regressive. This is significant: the discontent comes from a powerful interest group that brought the BJP to power in 2014.

A large disappointment, of course, has been the lack of any reduction in the corporate income tax. Instead a new surcharge has been added in the 2016 budget—much to the irritation of captains of industry. “Jaitley had said that he would bring down the corporate tax rate to 25 per cent. He ought to have spread it over three years. But we can already see that he has done nothing this year. How can he fulfil his promise in the remaining two budgets? Most of the big industry has been left out of the relief which has been given only to a section of the small industry,” says investor and chairman of the Manipal Global Education, T. V. Mohandas Pai.

“The number of cesses have gone up. This is just bureaucracy at play because by ­imposing a cess the Centre will not share the money with the states.” R.V. Kanoria, Former FICCI president

One of the demands was that the budget should focus on the strict streamlining of regulations in order to reduce tax uncertainties and improve the ease of doing business. There were also demands to broaden the tax net. Not much action was seen in this area either, which has predictably led to a lot of open grumbling. “Tinkering with taxes will not solve the problems. The government should have acted on ease of doing business in India and on simplification of taxes. Unfo­rtunately, nothing has happened on eit­her,” says Hemant Kanoria, CMD, SREI­ Infrastructure Finance.

CEOs are also irked by the addition of new cesses in the tax structure. Former FICCI president R.V. Kanoria lays out the general opinion: “The number of cesses have gone up. This is just bureaucracy at play because by imposing a cess the Centre will not share the money with the states.”

“The cess on the auto sector is a bad one. It is ­supposed to be a green cess but cars contribute to only 2 per cent of the pollution.” R.C. Bhargava, Maruti Suzuki chairman

The move towards tax dividend has also come to some flak as many feel that with this the dividend will be taxed thrice—post profit, at the dividend distribution tax stage, and at the hands of the recipient. It will affect many companies as it is as a source of return, especially SMEs. Says serial entrepreneur Jerry Rao, “The tax on the richer consumption items will be ok, if this is all that happens. But if more taxes are imposed, revenues will be hurt. The dividend tax in the hands of individuals might be unfair, as people who move to Mauritius or Singapore will be able to escape it.”

Of course, the automobile sector is fuming with a cess of 1 per cent for petrol cars, 2.5 per cent on diesel cars and 4 per cent on luxury cars. Maruti Suzuki chairman R.C. Bhargava is clear, “The cess on the auto sector is bad. It is supposed to be a green cess but cars contribute to only 2 per cent of the pollution. The industry is already burdened by the imposition of Euro 6 norms. Now this cess will make cars even costlier. On one side you have a policy on Make in India but then you are imposing a levy on the car industry which accounts for almost half of India’s manufacturing.”

Photo by Tushar Mane

“The dividend tax in the hands of ­individuals will be unfair, people who move to Mauritius or Singapore will ­escape it.” Jerry Rao, Enterpreneur.

There is a general feeling that by not giving manufacturing a boost through reduced corporate tax and other incentives, the budget has betrayed its slogan. Adds Guillaume Sicard, president of Nissan India, “The rollout of GST would have perhaps been a watershed moment for the Indian economy. However, no progress was made on this front. On the other hand, the industry also expected a cleaning up of ­excise duty structures (auto sector). With that too there was disappointment.”

Some experts also feel that the move to tax the rich is also regressive and will ultimately come down on industrialists—most of whom are high net-worth individuals. Says Pai, “Taxing the rich and increasing the surcharge from 12 to 15 per cent is unc­alled for. It is a socialist mindset coming to the BJP.” Can you imagine that?