Get ready to feel the pinch: Budget 2015 has brought costlier days for common man?

By Bipin Sapra, Tax Partner, EY India

Budget 2015-16 has been termed as 'Budget for the Corporates' by the critics. The middle class and the common man had a lot of expectations from this but they seem to have been left high and dry. However, another set of critics are of the view that the budget is progressive in nature and supplements India's growth path, which would eventually benefit the citizens. Thus, it appears to be a case of short term pain for long term gains.

From indirect tax perspective, the FM has brought about multiple changes including change in duty structures, liberalization in credit provisions and rationalization of penal provisions . Some of these amendments directly impact the monthly household budget of the people.

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First and foremost, it may be noted that a significant amount of expenditure is made on purchasing services like eating out, grooming, gym, entertainment, communication (phone bills), shopping (online shopping), travelling (cabs, air travel), and cleaning/ maintenance.

Considering the increase in rate of levy of service tax from 12.36% to 14%, the pockets of large proportion of population are bound to shrink. It may also depress the levels of consumption of certain services. A further levy of 2% as Swachh Bharat Cess will shoot the service tax rate to 16%, and will further aggravate the issue. The common man is obviously not going to feel rich post this budget.

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There have also been changes in excise duty and customs duty structure impacting the price of goods, increasing some and decreasing other. As the theme for budget was 'Make in India', the duty benefit seemed only to have been skewed in favor of inputs used in manufacturing to boost domestic industry. The same have been brought about at the cost of increase in duties of final goods. As an immediate impact, it is not in favor of end consumer. Mobile phones, tablets, packed beverages and cigarettes among other things are set to cost more.

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India is now a tech savvy country, with huge spend on mobile phones and tablets. The increase in duty may inhibit such expenditure. The concern is more for the rural India, which is developing rapidly from a telecom perspective. The increase in prices of mobile phones and rate of service tax may potentially discourage the rural population to graduate to use of mobile communication technology.
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Increase in service tax rate and excise duty would also directly impact the real estate prices, especially the residential sector as the tax is levied on construction, and other related goods and services. A cumulative increase may mean that the dream of common man to own a house may now come at a higher price.
The average impact of Annual Budget 2015 - 16 on the monthly household budget of a family with monthly income of Rs. 50,000, considering the same level of expenditure pre and post the Budget is illustrated below:

It appears that on a short term basis, the average savings are likely to get squeezed if the consumer maintains the same level of expenditure. Thus, the initial disenchantment of the common man with the Budget seems to be reasonable. Having stated the same, it is possible on a long term basis, when the production shifts to domestic manufacturing sector, the price of goods are likely to come down. However, this shall take some waiting.

We are on the brink of GST introduction which shall revamp the entire indirect tax structure. It is expected that GST shall bring efficiency in the supply chain with seamless credit flow. As a result, it shall eventually result in reduction of prices, and benefit the common man. The same has also been advocated by the FM as well. If GST that introduced in India on the same pattern, then it is probable that the common man shall reap benefits in quick time. We need to wait and watch!!

(Views are personal)