This is the last budget being presented by this government. It is therefore expected to be a populist budget with a number of schemes for the poor. The key issue is that we already have a deficit of 5.4 per cent and there is little room in terms of the government being able to augment revenues. So, where are resources going to come from to fund the populist schemes?
The finance minister has just undertaken a tour of key countries to promote FDI (foreign direct investment) in the country. Clearly, the two key imperatives before the government at this point are FDI and buoyancy in capital markets, which is essential to the government's disinvestment programme.
Under these circumstances, it is inevitable the government will seek to raise resources by taxing the "super rich" and this could happen through introduction of a tax level for those having income beyond a particular level. It is likely that this will be positioned as a one-time tax to demonstrate that the tax regime is otherwise stable. The other issue doing the rounds is the possible introduction of inheritance tax, which may come not as a separate enactment but as income in the hands of the recipient, as in the case of gifts. Should this happen, inevitably, the exemption available for gifts to relatives could get significantly curtailed.
In the recent past, there has been significant negativity surrounding GAAR (general anti-avoidance rules), retrospective amendments, aggressive tax demands etc. To some extent this negativity was addressed by implementing the recommendations of the Shome and Rangachary committees. It is necessary to push further along these lines if the FDI regime is to be encouraged and capital markets are to be given a boost.
Dinesh Kanabar is deputy CEO of KPMG.