7 Questions To Ask This Budget 2018-19

Before you get lost in the Budget Day speech, read through this handy list of some relevant questions you need to ask:

• How Much Is The Government Earning From Indirect Tax?

There are three key sources of tax for the government – corporate tax, income tax and Goods and Service Tax (GST). An increase in tax revenue is good news to look out for. This means the government can fund more of its expenses without borrowing.

This may be true this next year as the government is projecting a 15% rise in tax revenue, according to a report by Kotak Securities.

The report further said that the increased revenue may be attributed to a 15% rise in indirect taxes, namely GST.

• Will Any Direct Tax SOPs Affect The Government Revenue?

An increase in GST revenues remains uncertain, according to the Kotak Securities report. As a result, the government may not change corporate tax rates. Doing so will reduce government revenues.

What is expected, though, is an increase in the tax exemption limit for individuals to Rs 3 lakh from Rs 2.5 lakh currently. This could help boost consumption and improve economic growth.

• Will My Investments Be Taxed Differently?

Investments can be taxed at three stages – while investing, while earning interest/dividends and while redeeming.

While investing, you either incur a Securities Transaction Tax (STT) or benefit from tax deductions. In the next stage, interest and dividends can often attract income tax or Dividend Distribution Tax (DDT). Redemptions, meanwhile, can attract capital gains tax.

Many expect that any or all three tax rules can see changes this year. However, the chances of attracting a higher capital gains tax on equity could be lower this year, according to the Kotak Securities report. STT, however, could be hiked to increase tax revenues.

• Are Non-Tax Revenues Growing Strong?

It’s not just tax. The government earns from other sources too, like income from selling shares in government-owned companies. At a time when the government could announce tax cuts for individuals or companies, non-tax revenue becomes even more important.

Kotak Securities expects non-tax revenue to increase by 12% for the next fiscal year. However, non-tax revenue for the current fiscal ending March 2018 could see a shortfall of Rs 13,000 crore, the report added.

• How Much Is Allocated For Subsidies?

There are two kinds of expenditure—productive and non-productive. Productive expenditure is one that can create jobs and increase productivity of the economy. Non-productive one, meanwhile, is welfare-oriented. Many consider subsidies to be a non-productive expenditure. For many years, it’s been one of the biggest costs borne by the government.

However, the market always looks for a lower subsidy cost as it can help keep government finances onside. For next fiscal, though, the government could announce a subsidy bill of Rs 2.88 lakh crore, which is 5% more than this year’s revised cost.

• Is There Any Increase In Capital Expenditure?

If there is an expenditure that the market cheers, it is usually capital expenditure or capex. This is the amount the government spends in creating an asset. A good example of this is the money spent in improving infrastructure, building roads, etc. This, in turn, creates jobs and helps improve the economy. “On the expenditure side, we expect higher allocation for rural development and job-creating capital expenditure such as roads and urban infrastructure,” the Kotak Securities report said. What you also need to keep an eye out on is whether the government did spend on capex in the current fiscal as per its previous budget forecast.

• What’s The Plan For Revenue Expenditure?

It costs a lot to run the government too. Think about all the payments to government employees and the interest payments on the government bonds. These can amount to a lot of money. Interest cost, in particular, is of interest to investors. The government has been incurring higher interest costs every year thanks to higher borrowing and redemption pressures. This expenditure is likely to rise by 11%, as per the Kotak Securities report.

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