Individual and corporate taxpayers, importers of goods and stock market investors will all pay more tax in financial year 2018-19.
The 1 percent increase in education cess will impact individual and corporate taxpayers and garner the government an estimated Rs 11,000 crore in additional taxes. Finance Minister Arun Jaitley said the increase was to fund “the needs of education and health of BPL (below poverty line) and rural families”.
Higher Customs Duties
Customs duties have increased on 45 items in order to encourage local manufacturing. These include imported cosmetics, mobile phones, silk fabrics, footwear, TV screens, kites, sunglasses and scent sprays. A whole host of imported edible oils have seen duties rise by up to 15 percent on account of what the budget terms as “rationalisation measures”.
Over and above this increase in customs duties, the government has proposed a Social Surcharge Levy at the rate of 10 percent of the aggregate duties of customs. This new surcharge replaces the 3 percent education cess on customs duties. Only a few items such as petrol and high speed diesel oil, gold and silver have been spared the new surcharge and will instead attract a 3 percent education cess. Specified goods that were exempt from the education cess will also be exempt from the surcharge.
The surcharge is expected to amount to Rs 8,000 crore in tax revenue in FY19.
LTCG Is Back
Equity investors will also pay more tax…on long term investments. The government has proposed to reintroduce a 10 percent tax on long term capital gains in excess of Rs 1 lakh. However, all gains up to Jan. 31, 2018 will be grandfathered, said the finance minister.
For example, if an equity share is purchased six months before Jan. 31, 2018 at Rs 100 and the highest price quoted on Jan. 31, 2018 in respect of this share is Rs 120, there will be no tax on the gain of Rs 20 if this share is sold after one year from the date of purchase. However, any gain in excess of Rs 20 earned after Jan. 31, 2018 will be taxed at 10 percent if this share is sold after July 31, 2018.”Arun Jaitley, Finance Minister (Budget 2018 Speech)
Good News For Mid-Sized Businesses
Small and medium-sized businesses have tax news to cheer about. The government has cut the headline corporate tax rate from 30 percent to 25 percent for all companies with an annual turnover of up to Rs 250 crore. While this will benefit 99 percent of the companies filing tax returns, it will hurt government revenue by only Rs 7,000 crore in FY19. That’s a fraction of the Rs 4.91 lakh crore in corporate tax revenue estimated for FY18.
Unfortunately, large businesses have yet to see the finance minister fulfill his 2015 promise of a cut in the corporate tax rate.
(Corrected to remove an incorrect reference to an additional surcharge.)