While the government should have attempted bolder reforms in the area of direct taxes and tried to improve compliance, it has instead created room for some arbitrage by lowering the income tax for the slab between R2.5 lakh and R5 lakh to 5% from 10%.

The FM has consequently, understandably, pencilled in a very modest increase in excise duty collections of just 8% for 2017-18 at R4.06 lakh crore.

While the government should have attempted bolder reforms in the area of direct taxes and tried to improve compliance, it has instead created room for some arbitrage by lowering the income tax for the slab between R2.5 lakh and R5 lakh to 5% from 10%.

To be fair, the government is somewhat constrained this time around in that there is some uncertainty surrounding tax collections in 2017-18 given that the Goods and Services Tax (GST) will be rolled out from July 1, this year.

Large companies are disappointed as there has been no cut in the income tax rates despite the finance minister having promised the rate would go down to 25% by 2019 from the current level of 30%.

He has, however, cut the corporate tax rate for small companies with a turnover of up to R50 crore to 25%, from 30%, which is expected to benefit 96% of Indian companies.

While the finance minister talked about how a lower tax rate encourages compliance, he chose not to do anything about the 30% tax rate, which kicks in very early at an income level of R10 lakh.

Tax experts point out that with the income slab of above R5 lakh now attracting 20% tax, there would be those looking to move into the slab below.

The FM has consequently, understandably, pencilled in a very modest increase in excise duty collections of just 8% for 2017-18 at R4.06 lakh crore.

However, he has budgeted for a 15.3% increase in direct tax collections—R5.4 lakh crore from corporation taxes and R4.4 lakh crore from personal income taxes.

This is despite the relief given to small taxpayers—those earning an income of between R2.5 lakh and R5 lakh will now attract a tax rate of just 5%, down from 10%.

The revenue foregone on this score is R15,500 crore but the government will mop up R2,700 crore

from an additional surcharge of 10% on those taxpayers with an income of between R50 lakh and R1 crore.

As such the increase in net tax collections —over the revised estimatefor 2016-1017— has been pegged at 12.69%, or R12.27 lakh crore.