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Corporate India has many other reasons to be pleased with the budget proposals; Finance Minister has done something for both consumption and capital expenditure.

The reduction in the general Cenvat rate from 16% to 14% is a good move that should bring cheer across industries. Notwithstanding the high prices of raw materials, most companies should be in a position to pass on the benefits to consumers, thereby, increasing consumption.

In addition, there are specific duty cuts for several sectors that should be reason for celebration. So, whether it's two-wheelers, cars or pharmaceuticals, consumers should be paying less. If demand is back on track, it should encourage manufacturers to step-up production capacities, and that, in turn, will increase capital expenditure.

While the Finance Minister may not have lowered the corporation charge or lifted the surcharge or the eductaion cess, a very big plus is that the service tax remains unchanged at 12.5%. Another relief has come in the form of changes in FBT (Fringe Benefit Tax) on certain facilities provided to employees like crèche facilities and guest houses. That apart, companies, which receive dividends from subsidiaries, can now set-off the dividend distribution tax paid by the subsidiary company against the dividend distribution tax payable by the parent company. In short, it will help eliminate the incidence of double Dividend Distribution Tax.

The markets, though, seem to be upset with two things. First, the budget has proposed a hike in short-term capital gains tax on securities to 15% from 10%. This would mean a 50% increase in tax outgo with regards to short-term gains on sale of shares or mutual fund units. This will be taken as major negative in times to come on the capital market.

Mercifully for the markets, there was no increase in the Securities Transaction Tax but Finance Minister (FM) sought to get more revenue by imposing a Commodities Transaction Tax - another thing that is likely to please the Left. The other disappointments come in the form of no reduction in Corporate Tax or Dividend Distribution Tax.

He also announced the withdrawal of the much-criticized banking Cash Transaction Tax but said that this will happen only from April 2009 onwards. Why does the FM think that the utility of the tax he thinks is so useful to nail black money players will be gone after 2009? I don't see any reason for imposing and taking back this tax.

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Dr. Gourav Vallabh is at present Professor (Finance) at XLRI Jamshedpur.
He is a Certified Financial Risk Manager (GARP, USA), Chartered Accountant (ICAI, India), Company Secretary (ICSI, India), Ph.D. (UoR, India), M.Com., LL.B.
Currently, he is also associated with Govt. of Rajasthan in the capacity of Honorary Advisor to Ministry of Revenue.