BUDGET 2020 – THE PROS AND CONS

BUDGET 2020 – THE PROS AND CONS

As a sequel to my Budget article of 5^th February 2020, here come some more snapshots for you.

Budget 2020 has proved to be a deft balancing act. There are two sides to any coin.  So also with a Budget.  Finance Minister, entrusted with the tough job of presenting the 2020 Budget, has done a decent job of it, in my opinion. My ability and comprehension permitted, I am presenting the analysis.

The so called NPA norms are competence-based in India.  Our country is basically an agrarian economy.  Hence, the million dollar question is “will the 90 days cut off provided for counting NPA first prove right and next feasible”?

It is good that the Government on Thursday, the 13^th February 2020 directed banks not to declare any stressed loan account of MSMEs as NPA till March 2020 and work on recasting their debts. 

The Finance Minister, at a press conference, after meeting Public Sector Undertaking bank heads, drew reference to a circular from the Reserve Bank that provides for stressed loan accounts of MSMEs not being declared non-performing assets (NPAs). 

She had directed that banks to follow that circular and not declare any stressed MSME loan as NPA till March 2020.  This, she felt, would help the MSME sector.

According to a press report, the gold loan companies in India are competing not just with each other, but against financial service providers also.  While the size of the unorganised gold loan sector which is estimated to be three times the size of the organised sector, implying significant growth potential, it is unfortunate that it is actively being encroached upon by financial service players who offer unsecured loans. 

The report further added that customers who previously had to pledge gold to fund their emergency cash shortages, consumer durable purchases and holidays now have a risk-free avenue to source funds without any collateral.  Hence, it is strongly felt that the NPA norms for gold loans need to be revisited. 

Another significant point to be considered is whether the tax on medical equipment imported into India need to be jacked up at all.  Also, another question lurking in many minds is whether the online pharmacy concept spoken about in Budget 2020 can be ethically proven to be right.  It is for the Government to study these important points and revert to us with answers.

On a studied analysis of the Budget 2020, it is acceptable to be crafted for the present times.  While the Budget 2019 proved to be an over ambitious one setting unreachable GST targets, the present Budget walks a very thin line drawn between the fiscal frugality and the prevailing market. 

There was a cost cutting drive of Rs.75,000 crores with reference to MNREGA in the last year’s budget.  However, the sad part is that the farmers were not paid the finance promised to them through the Budget.

Despite a slowdown in the rural economy and the need to stimulate rural demand, the Centre has slashed budgetary allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme by Rs.9,500 crore for the coming year.

Finance Minister Nirmala Sitharaman announced Rs.61,500 crores for the scheme in 2020-21, a 13% drop from 2019-20 revised estimates of Rs.71,000 crores.

As of last week, the scheme had already run through its original budgetary allocation of 2019-20, and 15 states were already in the red.  The additional money granted in the revised estimates provides some breathing space.  However, groups representing rural workers said that the lower allocation would have a disastrous impact on the rural economy.

 This is likely to deprive a large number of rural poor accesses to income and consumption because of growing rural distress and unemployment.

The budget 2020-21 has generated a mixed reaction from economists. While some have pointed at the fiscal constraints due to inadequate revenue receipts for not providing enough space for an expansionary fiscal policy, others have praised it for setting more realistic projections for growth and tax buoyancy.

As financial accruals are important to boost investment and growth, these need a closer look.

Heavy dependence on non-tax receipts

A reading of the budget documents shows that the central government is heavily banking on disinvestment and communication services for higher receipts (revenue and capital) in FY21 - total receipts up from Rs 26.99 lakh crore in FY20 (RE) to Rs 30.95 lakh crore in FY20 (BE). This is an increase of 15%.

Of this, "miscellaneous capital receipts" go up dramatically from (minus) 38% in FY20 (RE) to (plus) 223% in FY21 (BE) - from Rs 65,000 crore to Rs 2,10,000 crore. This head shows two capital receipt sources: (a) "disinvestment receipts" of Rs 1,20,000 crore and (b) "disinvestment of government stakes in public sector banks and financial institutions (LIC and IDBI) of Rs 90,000 crore.

Another component going up substantially is "other communication services" (non-tax revenue) from which the budget estimates to receive Rs 1,33,027 crore in FY21(BE) - up from Rs 58,989.64 crore in FY20 (RE). This is an increase of 125%. There is as yet no clarity whether this would be generated from spectrum auction or adjusted gross revenue (AGR) from telecom companies which is still pending before the apex court.

When it comes to "gross tax revenue", the budget documents show a massive shortfall of Rs 2.97 lakh crore in FY20 (RE) from the FY20 budget target - (minus) 12.1%. More than half of this (Rs 1.55 lakh crore) is accounted for by a shortfall in corporate tax. The government had cut the corporate tax by Rs 1.45 lakh crore in September 2019.

What happens to the government's investment plans if the receipts from disinvestment and communication services receipts fail to match the budget estimates?

Surely, that would be a major setback to all its investment plans.

However, the 12 percent growth rate targeted in Corporate Direct Taxes appears very ambitious. So also the capital expenditure which is about 18 – 22 percent more than 2019.  While the National Savings Scheme (NSS) stands at Rs.1.25 lakh crores in the last two years, the fiscal deficit staring us in the face is 7 – 8 percent.

Since the Finance Minister’s Budget speech was too long in the first part and too short in the second part, the Sensex was confused and did not know how to react.

As per the Budget 2020 proposals, the scope for fictitious donees has been totally sealed. Naveen Wadhwa, DGM, Taxmann.com leading publisher of taxation and corporate law books, says, "There are three ways through which the income tax department can find out if an individual has submitted fake bills to claim reimbursements. These are: a) If the ITR of that individual is selected for scrutiny and supporting evidence cannot be provided by the individual to substantiate his claims, b) If the Department asks the employer to furnish supporting evidence for tax deducted at source (TDS) calculated under Section 192 and bills submitted by the employees are not found to be genuine, and c) If the tax department gets some information through search or survey indicating that the employee has claimed deduction on the basis of false bills."
            This will greatly help in curbing corruption at the lower and middle levels. 

The income tax department is actually tracking your every financial transaction. Every bank is required to report high value transactions to the department through an Annual Information Return (AIR). Some of these types of transactions include cash deposits aggregating to Rs 10 lakh or more in a financial year, in one or more saving accounts of a person, depositing money in fixed deposits aggregating to Rs 10 lakh or more in financial year and so on.  

Taking a big leap towards transparent tax administration, the income tax department on Monday rolled out faceless e-assessment scheme that eliminates physical interface between an assessing officer and an assessee.
           This is aimed at moving to faceless scrutiny and elimination of human interface,” revenue secretary AB Pandey said while inaugurating the National e-Assessment Centre (NeAC).
           Ease of compliance for taxpayers, transparency and efficiency, functional specialisation, improvement in the quality of assessment, risk-based and focussed approach, better monitoring and expeditious disposal of cases are some of the salient features of the new scheme.

A total of 2,686 officials of the I-T department have been deputed for implementation of the scheme.

            The setting up of National e-Assessment Centre is a ‘momentous step’ towards the larger objectives of better taxpayer service, reduction of taxpayer grievances in line with prime minister's vision of ‘Digital India' and promotion of ease of doing business,” the department said.

The income tax department's e-filing website has undergone many changes over the past one year. It is important that you are aware of these changes to avoid making any kind of mistakes at the time of filing your income tax return (ITR). This is time it becomes all the more important because late filing of ITR will cost you.
            If you are eligible to file ITR-1 for the FY 2017-18 and you are filing it using 'Prepare and Submit Online', you now have to the option to get certain fields auto-populated (this is a new feature). You can choose to auto-populate the fields selecting last year’s ITR or Form 26AS.

If you select the 'auto-populate' check boxes then these details will be auto-populated and you will not be required to fill /select them again while filing your ITR using the ITR method.

If you do not match the TDS details (which are auto-populated) with the Form 26AS, then you may miss out on the tax-credit available to you.
           Therefore, while filing your ITR you must not rely solely on the automatic import of data and must check all the details from Form 26AS. In case of mis-match, take the TDS figures from the Form 26AS as downloaded from the TRACES website.

 The panic trying to be created due to the 5-10 percent disinvestment in Life Insurance Corporation reforms is misplaced and unwarranted.  It is only for the purpose of raising money to fill the budget hole.  The disinvestment will help to be transparent and not opaque.  This is not to be confused with privatization.  Only disinvestment is proposed which will improve accountability.

The much awaited proposals with regard to bonds has proved to be revolutionary.  As per these proposals, a few categories of Non Resident Indians will be permitted to hold shares in government holdings in the form of sovereign bonds. 

The Finance Minister broke ground by addressing the woes of the walnut manufacturers and the willow industry in Kashmir.  Consequently, their business is bound to see a new high in the near future.  Kudos to the FM for this insightful gesture.

Though we hear a lot of noise about the protectionist trend in the Budget 2020, I strongly feel that while every other country is proving to be protectionist in their attitude and outlook, we need not have any qualms about towing the line.

The 'Direct Tax Vivad se Vishwas Bill, 2020' introduced in the budget seeks to resolve disputed tax cases worth Rs 9.32 lakh crore.
           Mumbai, which contributes one-third of the total tax collections, has already started working on implementing the scheme and has identified around one lakh cases which could come under the ambit of the tax amnesty once it gets the President’s assent.
           According to sources, in Mumbai, over 60,000 cases are before the Commissioner of Incometax (Appeals), over 22,000 cases are before the Income Tax Appellate Tribunal and over 13,000 cases before the Supreme Court and the Bombay High Court.

          Mumbai is currently 2.5 percent behind its tax collection target. Many of the big corporates and PSUs like LIC and SBINSE -2.46 % are locked in tax disputes. If these entities avail the scheme, not only will it (the Mumbai cirple) meet the tax mop up targets but will be able to perform much better,” said an official.

This will reasonably free the hands of the government with reference to revenue.

Overall world economy has slowed down.  Post 2018, we saw many economies rebound.  In the current context of the world economy slowing down, government spending would prove to be more beneficial. 

The most significant fact is that this Budget does not stand in the way of performance.  Government is not a magician who can stimulate growth with a swish of the magical wand.  There are countless other dynamics at play.  And the social media is also not helping in any way with its random forwards and WhatsApp messages which are highly misleading than informative.

We should realise that while is it easy to rant on about the negatives in the Budget, the devil rests in the details.  It is for the government to work on these details and brush the devil and the cobwebs away.

One welcome announcement by the government is that there will not be multiple examinations for various government jobs.  Examination for all government jobs will be rolled into one.

The finance minister’s proposals with regard to the educational sector are very encouraging and welcome.  These seem to be framed keeping improvement in skilling in mind.  While education support from the government will be conditional, growth, performance and results will rest in the hands of the common man.  He should use the educational support and sops to grow from small to middle to big sector.

It is very emphatically felt that the farm sector and the factory sector in India are too fragmented for anybody’s  liking. It is left to us the natives to strive to get rid of this lacuna and convert them into planned and organised sectors.  However, this exercise will definitely take a long time to fructify.  But, it would be beneficial if we rang the gong for the start of the exercise early. 

Moreover, the public and opposition should not make it a habit of creating distortions and confusions in well meaning Government laws and proposals.  Let us exercise patience and forbearance in waiting for the well drafted proposals to take wings and fly.  Let us patiently wait before we jump to conclusions.

All economic laws are not universal.  What applies to one country may prove anathema to another.  So let’s simply wait for the Budget 2020 to take its course and watch for the final results before we blow the trumpet.