Effectively ruling out revisiting the much-debated surcharge on rich people, Finance Minister Nirmala Sitharaman on Wednesday said the increase in the income tax surcharge on the super-rich is a small contribution to nation-building.
Responding to the debate on the Budget 2019-20 in the Lok Sabha, she also said economic growth is as much a focus of her Budget as was national security.
Sitharaman had last week also echoed similar views outside Parliament, saying India needed everyone to contribute towards nation-building.
Investors have seen Rs 3.5 lakh crore eroded in the last two days after the Budget fine print revealed that the surcharge on the High Net-worth Individuals (HNIs) was set to tax them between 39 and 42.7 per cent, leading to the crash. The market was down 174 points on the BSE on Wednesday.
Sitharaman had, however, said: “We will take it as it comes.”
An analysis by the Finance Ministry discloses those 40 per cent of foreign portfolio investors (FPIs), following the trust structure, will be impacted by the higher surcharge on HNIs levied in the budget.
So, FPIs, by default, come under this higher tax rate as they have been investing as a non-corporate entity such as an association of persons (AOPs) or trust, which, in the Income Tax law, are classified as individuals for the purpose of taxation.
On this, CBDT Chairman P.C. Mody on Wednesday said that FPIs and AIFs (Alternate Investment Funds) can alter to a corporate structure to avoid paying additional surcharge.
Earlier, justifying the raising of tax incidence on the super-rich, the Finance Ministry had said the highest tax rate in India was still lower than many countries, including the US and China, and it was a worldwide phenomenon to ask the super-rich to pay extra taxes.
Revenue Secretary Ajay Bhushan Pandey had said that the highest tax individual tax rate is 45 per cent in China and South Africa, and 50.3 per cent in the US.
The Budget proposed to increase the surcharge, charged on top of the applicable income tax rate, from 15 per cent to 25 per cent for those with taxable incomes of between Rs 2 crore and Rs 5 crore, and to 37 per cent for those earning more than Rs 5 crore. This takes the effective tax rate for those two groups to 39 per cent and 42.74 per cent respectively.
In Parliament on Wednesday, Sitharaman also said the government was committed to continuing on the path of fiscal consolidation and will control the fiscal deficit – set at 3.3 per cent of GDP for 2019-20 – without compromising on public expenditure.
Detailing the government’s steps to drive growth, she said: “The government’s intention is to push infrastructure development and invest over Rs 100 lakh crore in the next five years. The Centre has raised Minimum Support Price (MSP) for 22 commodities.
“There has been an increase of over Rs 80,000 crore from last financial year, and more than Rs 2 lakh crore over the Budget of 2017-18. This shows the serious intent of the government towards a stronger economy and the country’s development.”
She said the Budget 2019-20 reflected the government’s intention to boost investment and agricultural output and no other segments of the economy will suffer due to fiscal consolidation.
Nearly Rs 13.29 lakh crore will be transferred to states in FY20, the Finance Minister informed the Lok Sabha.
She also said the government has been taking several steps to achieve a $5 trillion economy by 2024-25.
Pushing for e-vehicles, she said the government will move the GST Council to reduce the GST rate on them from 12 per cent to 5 per cent. Besides, the government will give an additional tax benefit of Rs 1.5 lakh on the interest paid on loans taken for the purchase of EVs, she added.
Sitharaman also said that making available safe drinking water to every citizen was a priority for the government and it is working towards ‘Har Ghar Jal’ mission by 2024. “We will work with states for supplying tap water to all the rural households by 2024,” she said.
She also said the 4Rs – resolution, recovery, recap & reform – in banking brought about by the government has introduced positive changes in the sector, adding that the Centre took steps to address NPA issues in a holistic fashion.
“We have taken numerous steps to address the issues of NPAs. Government has infused Rs 3.19 lakh crore in PSU banks in the last few years. We have ensured PSBs do not struggle to meet capital requirements and credit growth,” she said.
Sitharaman has allocated Rs 70,000 crore for the recap of PSBs in the Budget.
Addressing the criticism over the disparities in the GDP growth projections in her Budget speech and the Economic Survey, she said that the differences in the projections arose from the fact that they used different base GDP figures.
The Economic Survey, tabled in Parliament on Thursday, a day before the Union Budget on Friday, pegged the nominal GDP growth at 12 per cent while the Budget projected it at 11 per cent.
The opposition had raised concern over two differing estimates of GDP growth that had been released just a day apart, and had sought clarification over which figure was correct.
Sitharaman said the Economic Survey’s GDP projection had been based on the provisional nominal GDP estimate, while the GDP growth estimate she had mentioned in her Budget speech was based on the advanced nominal GDP estimates.
“The growth rate of the nominal GDP for 2019-20 in the Budget documents has been projected at 12 per cent over the advanced nominal GDP estimates. The advanced estimates for 2018-19 were released on January 7, 2019,” she said.
“The growth rate of the nominal GDP for 2019-20 in the Economic Survey has been projected at 11 per cent over the provisional nominal GDP estimate of Rs 190,10,164 crore. The provisional estimate was released on May 31, 2019. Both the projections are consistent with each other,” she added.
She said the estimate she had provided to the House has used the same GDP base as the interim budget, which had been tabled by interim Finance Minister Piyush Goyal earlier this year, as it would enable comparison between the two figures.
“The Budget 2019-20 reflects the commitment of this government to substantially boost investment in agriculture, social sector, particularly in education and health, keeping the fiscal deficit at 3.3 per cent of GDP as against 3.4 per cent which was envisaged in the interim budget.
“Growth of the economy is as important as national security. This budget reflects the government’s commitment to boost investment in the agro and the social sector,” she said.
Taking on the criticism against the targets set in the Budget amid a slowing economy and lower tax revenues, Sitharaman said: “Projections made in the budget are realistic and adequately provide for items for expenditures such as defence, pensions and salaries, internal security and establishment expenditures of the government itself. So, to fully finance these expenditure commitments, necessary resource mobilisations from tax and non-tax sources have also been envisaged.”