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Rediff Business Desk |
January 15, 2004
Now is the time to buy that high-end mobile phone you have been thinking of and to gift a computer to your son. And to take the earliest flight to that dream vacation in Goa.
It may have been termed a 'Mini-Budget,' but it spells some major gains. Times just got better for Indian consumers.
The tax cuts on a host of services and goods, announced by Finance Minister Jaswant Singh on January 8, will lead to cheaper mobile phones, personal computers, air travel, and even home loans from employers.
So let us see how will the Mini-Budget affect the man in the street.
Cellphones, PCs, TVs, washing machines, ACs to cost less
The customs duty reduction on cellular phones and the removal of special additional duty will lead to lower of cellular handsets. More people are now likely to own cell phones.
Personal computer prices are expected to drop by 8-10 per cent due to a reduction in customs duty.
This will hit the grey market (assemblers) badly as the price difference between branded PCs and assembled ones will become negligible.
Analysts also foresee a boom in the PC market with the prices dropping. A study by rating agency ICRA shows that PCs are highly sensitive to prices. In India, PC costs approximately 24 months of per capita income, whereas in China it is only 4 months.
Consumer durables like branded high-end refrigerators and colour televisions, especially imported ones, will see their prices dropping.
Also, the cut in duty on colour picture tubes will result in cheaper colour television sets.
Prices of flat (liquid crystal display) and plasma televisions will also decline as colour picture tubes for these television sets are largely imported.
Air-conditioners will also cost marginally less, due to a reduction in the cost of compressors following a customs duty cut.
The prices of washing machines will also decline marginally.
Prices of video compact discs and digital compact discs will drop following the excise duty exemption on them. A Hindi film VCD is likely to cost Rs 20 less and a DVD may become cheaper by as much as Rs 70.
Specified infrastructure equipment for basic / cellular / Internet, V-Sat, radio paging and public mobile radio trunked services and parts of such equipment will also see a drop in prices.
Tax on raw materials used for manufacture of electronic components or optical fibres and cables, has been reduced and may result in a slight decrease in their prices.
Hardware companies like Wipro, HCL Infosys, Moser Baer and Zenith Computers will benefit from excise duty cut.
Shampoos, soaps cheaper
The reduction in import duty on raw materials will benefit select product categories such as soaps, shampoos, creams, perfumes, some processed food products, and will lead to a marginal decrease in prices.
Air travel to be affordable
The time was never better to travel by air for Indians. Most airline fares have now become cheaper than first AC train fares.
With the reduction in excise duty on aviation turbine fuel and the abolition of inland air travel tax and foreign travel tax, air travel has become affordable to a larger number of Indians.
Indian Airlines, Jet Airways and Sahara Airlines have already announced a 15 per cent cut in airfare.
Let us take up the one aspect of the Union Budget that most individuals consider most significant: taxation. Although the finance minister did not announce any cuts in direct tax rates, he has made an attempt to appease the middle-income class, the salaried people and the pensioners.
While most people would have liked a cut in taxation rates or some exemptions from income tax, the government has at least not burdened anyone with additional tax.
The small taxpayer will have fewer headaches now. For individuals drawing an annual salary of Rs 150,000 or less, filing of income tax returns is no longer required.
But this is applicable to only those employees for whom the entire tax liability has already been deducted at source.
The salary certificate, given by the employer to the Income Tax department, will be treated as a record of filing the tax returns.
There's some more cheer for you. Normally, if you have a loan at concessional rate for housing or any other purpose, from your employer, the income tax department values these perks by fixing a 10 per cent interest rate. However, this rate will now be cut by 2 per cent.
Thus employee perquisites will be taxed at a lower interest rate now.
There's good news for students too. The government has hinted at making educational loans cheaper to give a boost to higher studies.
Indians have now also been allowed by the government to invest up to $25,000 abroad. They can also remit a similar amount overseas without any questions being asked.
The finance minister has provided some relief for the elderly too.
Pensioners have been excluded from the one-by-six category, which means that all those who get pension, but whose total income is less than the minimum amount chargeable to tax, will also not need to file any tax returns.
Senior citizens, above 60 years of age have been offered risk-free Dada Dadi Bonds that will have a higher interest rate than the prevailing market rate.
Laptops, liquor duty-free as part of baggage
If you take an overseas trip, you can now bring back a laptop without paying any duty on it. Passengers who bring in laptops as a part of their baggage need not pay import duty anymore.
Also, now there's twice as much reason to be high spirits. The quantity of liquor allowed to be brought back duty-free has been being increased from 1 litre to 2 litres.
The prices of imported liquor are also likely to drop by 10 per cent.
The mini-Budget also spells good times for those who are returning to India after working abroad and bringing along home appliances with them.
The government has specified that there will be no duty on cooking ranges, washing machines, VCD / VCRs, refrigerators up to 300-litre capacity, laptops and PCs.
The finance minister also reduced duty (under the 'transfer of residence' category) on gold and silver (except ornaments), photocopiers, TVs, digital video players, home theatres, dish washers, music systems, ACs, deep freezers, refrigerators of 300-litre-plus capacity, video cameras, vessels, word processing machines and cinematographic films of 35 mm and above.
Healthcare to cost less
Excise duty on medical, surgical, dental and veterinary furniture reduced, and customs duty on select medical equipment, parts of artificial limbs and specified rehabilitation aids has been cut. This will lower the cost of equipment, facilitating greater equipment penetration and lowering project cost for new ventures.
The tax benefits will help reduce the cost of hospitalisation.
Customs duty reduction is likely to make items more affordable.
The reduction in customs duty on life saving bulk drugs and formulations may also result in lower prices of medicines.
Cheaper bulk drug imports will help pharma majors like Ranbaxy and Dr Reddy's. Apollo Hospitals set to benefit from duty cut on medical equipment.
The cut in customs duty on power equipment, project imports, power transmission and distribution projects, and electricity meters will reduce the cost of setting up transmission and distribution networks as also power-generating stations.
Power producers are likely to reduce power costs by about 5 paise per unit from the next month.
Well, car prices are not likely to drop despite the measures announced in the mini-Budget. However, the impending price hike -- partly on account of rising input cost -- may not be affected currently, according to ICRA.
Automotive players who are importing a many components or vehicles in the completely knocked down form will benefit positively from the cut in customs duty.
Several foreign players import critical components, like engine and transmission parts, from their parent or group companies. The cut in the customs duty rate will result in a decline in the input costs for them. The impact for manufacturers with high level of indigenisation will however be limited, says ICRA.
Also, a cut in the peak customs duty and abolition of special additional duty on steel may augur well for the automotive industry as some of the automotive manufacturers are dependent upon steel imports for some parts of their vehicles and the rising steel prices in the recent past have affected their manufacturing cost.
Companies like Tata Steel and SAIL will benefit as the Cost of production of steel may drop by 5-7 per cent.
More jobs on the horizon
With tax cuts and the following price reduction of a host of goods and services, private consumption is bound to get a boost.
This, in turn, say analysts, will give a much-needed impetus to production of more goods and services. This is likely to lead to more investment in these sectors and, thus, to more employment.
Analysts feel that with more disposable income in the hands of the consumer, greater demand for cheaper goods and services and a cut in taxes will all lead to a stronger economy with newer and larger number of jobs.
Tax returns and Internet
Filing of income tax returns will be made possible through Internet, using digital signatures. Although filing of tax returns through the Internet is allowed even now, people have to file the original return with the tax authorities. The digital signature plan will take care of this.
For service taxes, electronic filing of service tax returns, presently allowed only in respect of 10 services, has been extended to all the 58 taxable services.
Electronic filing of service tax returns, presently allowed only in respect of 10 services, is being extended to all the 58 taxable services.
Service providers providing more than one taxable service will be allowed to take single registration and file a single return.
Only a simple verification will now be made for grant of registration for service tax.
Instead of separate certificates to several deductors, there will be just one certificate from the Assessing Officer for no tax deduction at source in case of tax-exempt entities like trusts, etc.
Infrastructure projects to be granted one time approval for purpose of exemption under section 10 (23G) thereby replacing the present system of seeking periodical renewals.
The government also announces a host of trade facilitation measures.
These include among others extension of round-the-clock electronic filing of customs documents for clearance of goods and liberalisation of baggage rules.
Also, the number of challan forms for payment of TDS will be reduced from four to one.
No impact on fiscal deficit
The announcement of these tax cuts is likely to result in an indirect revenue loss of Rs 2,500 crore (Rs 25 billion) to the exchequer. But the estimated revenue loss is unlikely to have any major impact on the fiscal deficit, as the projected GDP growth of 7 per cent in the financial year 2003-04 will far outstrip the prospects of such loss.
Cheap loans for small businesses, farmers
Apart from these goodies, the government has also announced incentives for the manufacturing and the agricultural sectors.
For agriculture, the farm sector bank -- NABARD -- will work out a Rs 50,000-crore (Rs 500-billion) scheme over the next three years to improve agriculture infrastructure and offer cheap loans to farmers.
The Food Corporation of India has also been allowed to borrow from the market - a move that is expected to reduce the food subsidy bill by Rs 2,000 crore (Rs 20 billion).
SIDBI, the small-scale sector bank, will launch a Rs 10,000 crore (Rs 100 billion) fund to offer financial assistance to the ailing small and medium enterprises.
The government has also decided to provide Rs 50,000 crore (Rs 500 billion) at concessional interest rates to fund infrastructure projects.
Term loans and working capital to projects in power generation, sea ports, airports, roads, tourism, telecommunication and urban infrastructure will be provided at 2 percentage points below the prime lending rate.
More disposable income
The measures announced in the budget will help the common man as also the corporate sector, and are aimed at boosting economic growth, say analysts.
But you, dear consumer, will benefit more from the potential increase in your disposable income owing to decrease in duty on other consumer products such as mobile phones, computers, electronic goods, cars; and services such as telecom, airfare and electricity.