Union Finance Minister Arun Jaitley’s 2015-16 Budget, less than two weeks away, is likely to announce incentives to boost Prime Minister Narendra Modi’s flagship schemes, such as Make in India, Swachh Bharat and Smart Cities.
The steps could include a Swachh Bharat cess of 0.05 per cent on all items covered under the service tax, including phone bills, restaurant bills, information technology (IT) and IT-enabled services bills, Business Standard has learnt from several sources.
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The Budget is also likely to reduce rates of minimum alternate tax (MAT) and dividend distribution tax (DDT) for special economic zones (SEZs), and rationalise duties to promote local manufacturing. It might also see Jaitley announcing the four-five cities where local bodies would be allowed to issue municipal bonds to finance infrastructure under the Smart Cities initiative.
Though the Swachh Bharat cess is not large, officials said it would still bring in additional revenue for the programme once implemented. They added the Centre planned to keep the funding for Swachh Bharat at Rs 80,000 crore for three-four years.
The service tax target for 2014-15 has been set at Rs 2.15 lakh crore. Considering the target for the next financial year could be close to Rs 2.4 lakh crore with the additional cess, Swachh Bharat could get an additional revenue of Rs 150 crore.
“The idea is that people and businesses will be taxed a small percentage and they will pay willingly as [it would be] their way of contributing to the Swachh Bharat programme,” said an official.
Though the differential MAT rate is yet to be decided, it is likely to be between five per cent and 10 per cent.
The Centre had introduced MAT to ensure no company making a profit could use exemptions and incentives to avoid taxes. It was extended for SEZs in 2012 amid severe protests from industry. The current rate is 18.5 per cent but the effective rate goes up to 20 per cent after including surcharge and cess. The rate for corporate tax — 30 per cent — nearly touches 33 per cent with cess and surcharge.
The commerce ministry, the biggest proponent of cutting MAT rate for SEZ developers and small & medium enterprises (SMEs), has sent several proposals to the finance ministry to that end.
There is no provision in the Income-Tax Act for incentives to local manufacturing, though some relief is given to SEZs.
The pitch is for restoring relief for SEZs and providing some to SMEs.
Additionally, for the Pradhan Mantri Jan Dhan Yojana (PMJDY), now that the initial and revised targets for opening accounts have been exceeded, banks would be given incentives in a yet undecided manner to keep the accounts active with increased transactions, including under the direct benefits transfer scheme, sources said. To this end, the Centre has already announced the direct benefits transfer scheme Pahal. Thirty-six benefits schemes are linked with customers’ accounts and subsidies are transferred directly.
Banks currently get a one per cent commission for linking accounts opened under the Jan Dhan Yojana to the direct benefits scheme.
“We are mulling more incentives for banks to keep the accounts opened under Jan Dhan active as the ministry has asked us to do so. Banks lose money every day when they try to keep zero-balance accounts operational,” said a source.
Under the Smart Cities scheme, the finance ministry has asked the urban development ministry to suggest five-six cities where municipal bonds could be issued. These bonds are issued by municipal bodies, or by states on these bodies’ behalf, to raise capital for infrastructure projects. After Finance Minister Jaitley announced the intention to develop 100 smart cities in last year’s Union Budget, the Centre decided to revive these bonds.
On December 30, the Securities and Exchange Board of India (Sebi) had released a concept paper on the issue and trading of such bonds on exchanges and invited comments from public. The concept paper said the civic body issuing these bonds would have to obtain ratings from credit rating agencies and these would have a minimum tenure of three years.
IN THE OFFING
Make in India
- Minimum alternate tax on special economic zones (SEZs) and small businesses could be reduced
- Dividend distribution tax revision for SEZs on cards
- Additional cess for ‘clean India’ campaign on items under service tax
- Cess could be up to 0.05%. Centre targeting to earn Rs 80,000 crore in 3-4 years
Pradhan Mantri Jan Dhan Yojana
- More incentives for banks to keep accounts active
- More direct benefits schemes under the Pahal project to be linked to customer accounts
- Names of cities that will launch municipal bonds could be announced
- More allocation on cards for the project