DEPARTMENT OF ENTERPRISE, TRADE & INVESTMENT – DRAFT BUDGET

2011-15

Equality Impact Assessment and High Level Impact Assessment

1. EQIA for Budget 2010 spending proposals

Summary of the equality and good relations implications of DETI current and
capital spending proposals for the Budget 2010 period (2011-2015)
High level Impact Assessments to ascertain the impact of DETI’s Draft Budget
2010 spending proposals were conducted in advance of the Executive’s Draft
Budget announcement in accordance with Section 75 (1) and (2) of the Northern
Ireland Act 1998. These assessments revealed mostly neutral or positive impacts
in relation to section 75 groups. However, some negative impacts are also
registered with mitigating action.

2. Actions to achieve Budget 2010 savings plans

Summary of the main actions DETI intends to take to deliver the proposed
savings over the Budget 2010 period in order to deliver its proposed
spending plans, and any mitigating actions to reduce the impact on the
delivery of priority services.
The department has identified a range of actions to achieve the additional
resource savings of £1.1m/£1.7m/£2.4m/£3.3m that would be required over the
Budget 2010 period in order to achieve its spending proposals as set out in the
department’s draft budget spending plans.
These are being delivered through a range of measures including:
1 reduction in payroll, administration and marketing programmes in Tourism
Ireland Ltd;
2 reduction in operating costs in InterTradeIreland;
3 partnering with councils to undertake petroleum licensing inspections within
the Fuel & Oil Liaison Unit (HSENI);
4 reduction in IT support (DETI Corporate Services);
5 reduction in consultancy expenditure (Finance & EU Programmes);
0 reduction in previously planned expenditure on service provision to
secure improved value for money following an appraisal that determined
the optimal support appropriate (Telecoms Policy Unit).
In order to determine those savings that would be selected to enable the
department to meet its spending proposals, a ‘long list’ of savings options was
developed. The relative severity and impact of each option was then assessed in
order to enable the Departmental Board to prioritise and identify sufficient savings
options to enable the department to take forward its essential services. Key
factors that informed the assessment of the severity of the options were the likely
impact on frontline services, likely impact on section 75 groups and the impact on
the department’s staffing levels.
3. EQIA of savings plans for the Budget 2010 period

Summary of the impact of the proposed savings plans in terms of equality

and good relations
The department has undertaken a High level Impact Assessment of its saving
plans on section 75 groups. The assessment shows that the plans are expected to
have a neutral impact on these groups.

4. Implications of Budget 2010 proposals for section 75 and other

impact groups

Section 75 / Other Current Capital Savings

Impact Group Spending Spending Proposals
Proposals Proposals
Between Men & Women Neutral impact Neutral impact Neutral impact
Generally
Persons of different age Neutral impact Neutral impact Neutral impact
Section 75 / Other Neutral impact Neutral impact Neutral impact
Impact Group Current
Spending Proposals
Capital Spending
Proposals Savings
Proposals Persons with
or without disability
Persons of different Neutral impact Neutral impact Neutral impact
religious belief
Persons with or without Neutral impact Neutral impact Neutral impact
dependents
Persons of different Neutral impact Neutral impact Neutral impact
political opinion
Persons of different Neutral impact Neutral impact Neutral impact
marital status
Persons of different Neutral impact Neutral impact Neutral impact
racial group
Persons of different Neutral impact Neutral impact Neutral impact
sexual orientation
Sustainability Some positive Some positive Some negative
impact impact impact
Poverty/Social Inclusion Some positive Some positive Some negative
impact impact impact
 5. Mitigating Measures

Set out any mitigating measures that have been taken or alternative actions
that could be taken by your department to offset any disproportionate
adverse impact in terms of equality and good relations
The department has undertaken a High level Impact Assessment of its saving
plans on section 75 groups. The assessment shows that the plans are expected to
have a neutral impact on these groups, with the exception of savings proposals for
Tourism Ireland Ltd and InterTradeIreland. These organisations have taken the
following mitigating action to ensure that reductions will be applied to admin areas
to the greatest extent possible in order to minimise the impact to key markets and
economic activity.
Budget 2010 Review: Proposals Impacting All Individuals
1. Changes in tax-slabs: Reduction in tax liability is uniform for individual
taxpayers (i.e., male, female and senior citizens) with the same income
level. Unfortunately, there is no change in the tax liability of individuals
having income up to Rs 3 lakh. The exact savings due to widening of the tax
slabs is as follows:

Income--------------------Savings

3 lakh------------------------nil
5 lakh------------------------20,600
10 lakh-----------------------51,500
20 lakh-----------------------51,500

To calculate the exact impact on your existing taxable income, use this tax
impact calculator:

2. Infrastructure Bonds: Additional deduction of Rs 20,000 (u/s 80CCF)

allowed for investment in long term infrastructure funds to be notified by
the central government. This is also another interesting move which can
lower your tax liability by as much as Rs 6,180 in addition to the reduction
in tax liability up to a maximum amount of Rs 51,500 due to hike in tax
slabs.

3. Gift of immovable property: Last year budget (Budget 2009) introduced

taxation of gifts in kinds which also included transfer of immovable property
without consideration or inadequate consideration effective from October 1,
2009. Now, budget 2010 has further amended the section 56(2)(vii)
retrospectively to exclude immovable property transactions involving
inadequate consideration (below stamp duty value). In other words, now tax
will be imposed only if the transfer of immovable property is without any
consideration.

4. Gift of Bullion: For those who thought that if gift of jewellery comes
under the tax net, why not start receiving gifts in bullion?... Sorry, now this
loophole is being plugged. Effective from June 1, 2010, the definition of
‘property’ under section 56 will include ‘bullion’.

5. New SARAL Form: ITR SARAL-II form consisting of two pages meant for
individual salaried taxpayers will be introduced shortly which will make it
easier for you to file the tax return on your own.

6. Joining bonus for NPS: One little known feature introduced by budget
2010 is the first time introduction of direct subsidy for individuals to
encourage them to subscribe to New Pension Scheme (NPS). According to
this innovative proposal , any individual who opens a NPS account during the
FY 2010-11 with a minimum contribution of Rs 1,000 and maximum
contribution of Rs 12,000 p.a. , government will co-contribute Rs 1,000 per
year. And the incentive scheme will continue for another 3 years.
7. Housing Loan Subsidy: To provide a boost to affordable housing, the one
per cent home loan subsidy introduced last year will continue for another
one year. It is available on housing loan less than 10 lakh for purchasing
property costing up to Rs 20 lakh.

8. Service tax on Property: This is the most controversial provision of

budget 2010. Selling of under construction property by the developers /
builders will now attract service tax thereby raising the cost of property.
Consequently, installment purchase of immovable property will become
liable for service tax. However, if the entire consideration is paid after
completion of construction, then there won’t be any service tax.

It will result in additional tax outgo and consequent increase in the value of
flats under construction by about 3.4% of price as service tax @ 10.3% will
be charged on 1/3 portion of the total sale value.

Now property buyers will face another dilemma i.e., whether to go in for a
constructed property (which is more expensive) or under-construction
property and pay the service tax?

Budget Changes Impacting Small businesses &

Professionals
1. Audit Compliance: There is a fifty per cent hike in the threshold limit for
compulsory audit of books as per section 44AB of IT Act. Now audit will be
required only if turnover / gross receipts exceeds Rs 60 lakh for business and
Rs 15 lakh for professionals as against the present limits of Rs 40 lakh and Rs
10 lakh respectively.

2. Presumptive taxation: Ceiling for presumptive taxation of small

businesses (under section 44AD of the IT Act) increased from current
turnover / gross receipts of Rs 40 lakh to 60 lakh per annum.

3. TDS: The threshold limit for tax deduction at source (TDS) stands
increased (effective from 1st July, 2010) as follows:

Payment--------------------------------------------Existing----- Proposed

Contractors (single transaction)--------------- 20,000---------30,000

Contractors (multiple transactions)------------50,000---------75,000

Fees for professional & technical services----20,000--------30,000

Rent---------------------------------------------120,000------ 180,000

Insurance Commission--------------------------- 5,000---------20,000

Commission / brokerage------------------------ 2,500----------5,000
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Airlines: State of the Industry

Domestic air traffic grew 18.6% year-on-year between April 2010 and January
2011, driven by strong demand from both business and leisure segments.
During the period, average domestic passenger load factor was higher at
79.5% compared with 73.9% between April 2009 and January 2010.
International passenger traffic at Indian airports grew 10.9% year-on-year
between April 2010 and December 2010, driven by strong demand from
leisure tourists.

The industry's net sales increased 30.2% during April-December 2010,

EBITDA (earnings before interest, tax, depreciation and amortisation) stood at
21.8% while EBITDA margins were at 11.7%.

Budget Impact
Service tax on domestic economy class air tickets has been increased by Rs
50, and by Rs 250 for international routes. Business class travel on domestic
and international sectors will attract service tax of 10%.

Since airlines will be able to pass on the increase in service tax to customers,
its impact on the industry will be neutral.

Automobile: State of the Industry

The industry witnessed a strong growth in 2010-11. Cars and utility vehicles
(UVs) grew 30% while commercial vehicles (CVs), two-wheelers and tractors
grew 26%. Increasing cost of ownership and an already high base will
moderate demand in 2011-12. Cars and UVs are expected to grow 17%, CVs
18% and two-wheelers 14%.

Budget Impact
Increase in interest subvention on crop loans to 3% from 2%, revision of wage
rates under the NREGA scheme and continued focus on rural development is
expected to have a marginally positive impact on two-wheeler and tractor
sales. Extension of tax slabs to Rs 1.8 lakh will aid two-wheeler sales. Overall
impact on cars and commercial vehicles is expected to be neutral.
Announcements such as launch of the 'National Mission for hybrid and electric
vehicles', excise and customs benefit on hybrid, electric and fuel cell
technology-based vehicles will have no significant immediate impact on
alternate fuel vehicle sales. They, however, will aid sales in the long run.

Banking & finance: State of the Industry

Credit growth of approximately 21% is expected in 2010-11 owing to robust
credit flow to engineering and infrastructure sectors. In 2011-12, credit growth
is expected to moderate to 18-19% owing to steady increase in lending rates.
Net interest margins, which have been very strong in the past two quarters
ended December 2010, will marginally come under pressure in 2011-12 owing
to increase in deposit rates and a comparatively lower hike in lending rates.

Budget Impact
The government has proposed to enhance the housing loan limit under the
priority sector to Rs 25 lakh, and the limit for interest rate subvention of 1% on
home loans to Rs 15 lakh where the cost of the house does not exceed Rs 25
lakh. These measures are expected to help banks achieve their priority sector
lending targets and offer lower lending rates to borrowers.

Increase in interest rate subvention for agriculture loans to 3% will increase

availability of funds at cheaper rates.

Cement: State of the Industry

Demand growth in the first nine months of 2010-11 was a subdued 5% year-
on-year owing to a prolonged monsoon and slow pace of construction activity.
Large capacity additions pulled down operating rates to 78%. As a result,
average all-India cement prices fell approximately 2%. Given the pressure on
realisations and rising input costs, operating margins are expected to fall to
23% in 2010-11.

Budget Impact
Replacement of the existing excise duty rates with a 10% ad valorem rate and
an additional Rs 160 per tonne of cement have been proposed. This will result
in 2% to 4% increase in the excise duty payout. In the current environment,
cement companies will not be able to pass on the increase in duty to
customers. The proposal to reduce custom duties for gypsum and pet coke to
2.5% is unlikely to have a major impact because gypsum accounts for just 2-
3% of the total cost of cement sales while pet coke is used only by a few
companies.

Infrastructure: State of the Industry

Investment totalling Rs 7 lakh crore is expected between 2010-11 and 2014-
15 towards development of the country's roads, ports and airports, with roads
accounting for nearly 85% of the chunk.

Budget Impact
Proposed allocation towards infrastructure, including roads, ports and airports,
has been increased 23% for 2011-12. Also, the FII limit in corporate
infrastructure bonds has been raised by $20 billion, which is expected to lead
to a better mopping up of bond issues.

IIFCL's loan disbursal target has been set higher at Rs 25,000 crore for 2011-
12. Tax-free bonds totalling Rs 30,000 crore have been allowed to be issued
in the ports, roads, railways and housing sectors. Additional tax exemption of
Rs 20,000, applied in 2010-11, on investment in long-term infrastructure
bonds has been extended to 2011-12. These proposals will help address
funding issues in the infrastructure sector, and in faster financial closure of
projects.
Consumer durables: State of the Industry
Demand growth momentum in the household appliances industry is expected
to continue in 2011-12. It is poised to grow 15% to Rs 35,000 crore. The
growth will be supported by healthy volumes as well as improved price
realisations due to a shift in favour of high-value products and ability of
companies to partly pass on the rise in input costs. Demand growth will be
largely driven by favourable demographics, rising disposable incomes, shift in
consumer preference and competitive prices. Intense competition will curtail
passing on the increase in raw material prices to consumers.

Budget Impact
The increase in the income-tax exemption limit for general category tax
payers to Rs 1.8 lakh is expected to reduce the annual tax liability by Rs
2,000 and result in higher disposable income for the salaried class. This is
expected to have a marginally positive impact on the industry.

Power: State of the Industry

Capacity addition of approximately 48 GW is expected in the Eleventh Plan,
which will fall short of the government's target of 62 GW. Between 2010-11
and 2014-15, 82 GW of capacity is expected to be added, mostly by the
private sector.

Budget Impact
The sunset date for tax holiday under Section 80IA for companies involved in
generation, transmission and distribution of power has been extended by
another year to March 31, 2012, which will encourage investments. Creation
of infrastructure debt funds with tax benefits and an increase in the FII limit for
investing in corporate bonds to $40 billion will augment availability of funds.

Domestic equipment manufacturers for mega and ultra mega power projects
have been exempted from central excise duty to bring them on an even
platform with foreign suppliers. This will only have a marginally positive impact
on domestic equipment manufacturers.

Information Technology: State of the Industry

A revival in discretionary IT spending has resulted in volume-driven growth in
IT services exports. IT services' exports are expected to grow approximately
22% year-on-year to $34 billion in 2010-11.
Going ahead, rising discretionary spends, increased focus on newer markets,
developing high-end and new services and clients' need to cut costs would
propel exports, and translate into a growth of 17% to 19% in 2011-12.

Budget Impact
The levy of a minimum alternative tax (MAT) on IT units in special economic
zones and non-extension of benefits under the Software Technology Parks of
India scheme are expected to increase tax rates and thus impact cash flows
across the board. Small- and mid-sized players would be impacted more as a
larger proportion of their revenues accrues from STPI units, compared with
Tier-I players. However, marginal increase in MAT would be offset by a
decrease in the surcharge to 5%.

Textiles: State of the Industry

In 2010-11, the industry benefitted from continuing 9% year-on-year demand
growth in the domestic market and a rebound in exports, even as pressures
on the cost side increased. An unprecedented increase in cotton prices is
expected to lower profitability of spinning companies and garment
manufacturers in 2011-12. Polyester manufacturers, however, stand to gain.

Budget Impact
The impact on the sector is expected to be negative. Excise duty of 10%
imposed on branded readymade garments (RMG) and made-ups would lead
to yarn and fabric manufacturers paying a higher excise duty of 5% vis à vis
an optional 4% duty paid earlier. This will further pressurise the margins of
RMG and made-up manufacturers, who are already struggling with a rise in
input costs. However, reduction in customs duty on acrylonitrile and rayon
grade wood pulp to 2.5% would benefit acrylic and viscose fibre
manufacturers by reducing their raw material costs.

Real estate: State of the Industry

In the short term, demand is expected to slow down as affordability has been
impacted by the increase in interest rates coupled with high capital value
levels.

Budget Impact
Interest rate subvention of 1% has been extended for housing loans up to Rs
15 lakh (for cost of a house lower than Rs 25 lakh). Further, priority sector
lending limit for housing loans provided by banks has been enhanced to Rs
25 lakh. These measures will boost affordable housing.

Investment-linked deduction for businesses that develop affordable housing

has also been proposed. This would help generate higher investment in
affordable housing projects.

The proposal to levy 18.5% minimum alternate tax on developers of special

economic zone could negate the positive impact of the residential segment,
thus neutralising the impact for the overall real estate segment.