On 6 July Indian finance minister Pranab Mukherjee presented the union budget for the financial year 2009-2010. Mukherjee outlined plans to speed up infrastructure development and increase spending to help farmers and the poor.
The budget, the first since the Congress-led government was re-elected in May, also has implications for the country’s legal sector, bringing legal consultancy services under the ambit of service tax.
“At least the government has finally acknowledged that we’re providing a service,” joked one lawyer.
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Service tax is currently charged at 10%. While most lawyers have accepted the tax levy, many argue that it will directly increase legal bills, giving clients less leeway in fee negotiation. The finance minister added that the tax will not apply to lawyers practising alone, or to clients who are individuals.
In his speech Mukherjee said the first challenge was to return the country’s GDP growth rate to 9% per annum. He emphasized the need to broaden and deepen the nation’s agenda for inclusive development.
The finance minister was optimistic about the road to economic recovery but warned that India could not “afford to drop our guard. We have to continue our efforts to provide further stimulus to the economy.” He added that “public sector enterprises such as banks and insurance companies will remain in the public sector and will be given all support including capital infusion to grow and remain competitive.”
Infrastructure was cited as a fundamental priority, with Mukherjee promising to provide the India Infrastructure Finance Company with greater flexibility. He also urged states to remove bottlenecks on infrastructure projects, and assured the public that Rs5 billion (US$104 million) will be allocated for Mumbai flood projects. In addition Mukherjee promised that liquefied natural gas infrastructure will be expanded, and that an extra 23% will be spent on national highways.
Fringe benefit tax (FBT), which was introduced in 2005 as a charge on certain benefits offered by employers to their employees, has been abolished: the amount of tax collected by the government under FBT was not high and the paperwork burden to corporations was substantial. The abolition was welcomed by many businesses; however, the tax burden will now lie with employees, which is a cause of concern to many.
Other areas of commitment include agriculture, energy, schemes for the urban poor, affordable housing and the introduction of a central goods and services tax (see Mukherjee’s mixed bag).
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