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Chandra Shekhar
New Delhi, Feb 27: Setting aside soft options, finance minister Yashwant Sinha has come out with a set of measures aimed at fiscal consolidation, bolstering capital markets and putting the indirect taxation on an even keel. He imposed a surcharge of 10 per cent on corporate and personal income tax, Re 1 per litre cess on diesel and increased prices of postal stationery. The tax proposals are expected to yield an additional Rs 9,334 crore.
However, in a bid to "reform the reforms", the minister, while presenting his second regular budget in the Lok Sabha on Saturday, has promised a plethora of popular schemes, especially in the rural sector, for giving a humane face to the whole process. His much talked about excise restructuring proposals belied the expectations of the industry as the measures are broadly revenue neutral. On the direct tax side, he has not offered any sops to the personal income tax payer.
To restore confidence of small investors in the capital markets, the minister decided torestructure the Unit Trust of India (UTI) based on the Deepak Parekh committee report and proposed income tax exemptions for schemes of the UTI and other mutual funds. He proposed full exemption from income tax of all income from UTI and other mutual funds in addition to freeing the schemes from dividend tax. Also the rate of long-term capital gains tax for resident Indians and NRIs has been put at par at 10 per cent.
He abolished stamp duty on transfer of debt instruments in depository mode.Stock markets reacted with euphoria to the Budget proposals with the BSE sensitive index gaining 165.46 points to close at 3399.32 while the S&P, CNX, Nifty jumped up 40.10 points to close at 981.30 points.
Sinha has made industrial restructuring and amalgamation tax neutral with a comprehensive set of amendments to the Income Tax Act. Some tax concessions have also been doled out to the housing sector, housing finance companies, venture capital funds, banking sector and entertainment industry.
In case of excise,the number of slabs have been reduced to three from 11, with the merit rate at 8 per cent, mean rate at 16 per cent and de-merit rate at 24 per cent. However, additional duties have been imposed to prevent loss of revenue in the coming fiscal.
As far as customs were concerned, the minister imposed a five per cent duty on all commodities thus doing away with zero-duty imports. However, in order to mitigate this impact, he exempted the zero-duty import category from 4 per cent special additional duty. The effective peak rates have been brought down to 40 per cent from 45 per cent and the five (two and three) per cent special customs duty has been allowed to lapse with immediate effect. Seven major ad-valorem rates which are reduced to five basic rates are at 5 per cent, 15 per cent, 25 per cent, 35 per cent and 40 per cent.
For boosting exports, Sinha promised to make available the pre-shipment and post-shipment credit to the exporting community at international level. Also a committee under revenuesecretary would be set up to suggest measures for reducing the transaction cost.
Various taxation measures will yield an additional Rs 6,234 crore in indirect taxes and Rs 3,100 crore as direct taxes during 1999-2000. The spate of non-fiscal initiatives announced by the finance minister include Gold Bond Scheme, National Programme for Rural Industrialisation, Human Development Initiative, Annapurna Scheme for senior citizens and Education Guarantee Scheme. Jawahar Rozagar Yojana and Indira Awas Yojana will be rechristened as `Gram Samridhi Yojana' and `Samagra Awas Yojana' respectively.
Sinha also promised a review of the MRTP provisions and gave some sops to the SSI sector. His promises include setting up of Expenditure Reforms Commission, initiating zero-based budgeting and setting up a Guarantee Redemption Fund.
The total expenditure for the fiscal 1999-2000 has been pegged at Rs 2,83,882 crore as against the net revenue receipts and non-debt capital receipts of Rs 2,03,927 crore. The central Planoutlay at Rs 1,03,521 crore will be more by Rs 15,039 crore from last year's level of Rs 88,482 crore. The non-Plan expenditure is estimated to be Rs 2,07,003 crore compared to Rs 2,13,541 crore in the revised estimates for the current fiscal.
The revenue deficit is placed at Rs 54,147 crore, while the fiscal deficit will be Rs 79,995 crore. This amounts to 2.7 per cent and 4.0 per cent of the GDP, respectively, on the basis of new methodology of national accounting and after excluding the payment of the share of small savings collection to the state governments. However, based on the old series of GDP and excluding the payment of the share of small savings, the revenue deficit works out to be 3.0 per cent and fiscal deficit 4.4 per cent of the GDP.
The fiscal deficit for 1998-99 will be 6.5 per cent as against the budgetary target of 5.6 per cent.For the current year (1998-99), as per the revised estimates, the non-Plan expenditure has increased by Rs 17,616 crore, while there was a shortfall of Rs 3,631crore under the Plan. Net tax revenues for the Centre are estimated at Rs 1,09,537 crore reflecting a shortfall of Rs 7,320 crore mainly due to lower customs realisation.
The government is estimating to net Rs 8,000 crore from disinvestment against the target of Rs 5,000 crore. During 1999-2000, the finance minister proposed to mop up Rs 10,000 crore from disinvestment of shares of the public sector enterprises.The minister also expressed the confidence that his budget, "will set in motion a medium-term strategy for restoring the fiscal health of our economy.
Bold move on tax reforms, says Centre
The union budget for 1999-2000 has taken a bold initiative in tax rationalisation which will boost the economy, finance secretary Vijay Kelkar explained at the post-budget press conference. ``There has been no picking and choosing of items for tax rationalisation, the entire exercise is completely transparent. It does not favour any industry lobby,'' Kelkarexplained.
Along with Kelkar, revenue secretary JA Chaudhary, expenditure secretary EAS Sarma, chief economic adviser Shankar Acharya, special secretary banking CM Vasudev, chairman CBEC SD Mohile and chairman CBDT Ravi Kant fielded a host of questions on the Budget. Excerpts from the press conference:
On excluding small savings from the budget
:There was a problem with small savings because receipts were on the public account while payments came from the Consolidated Fund of India. These transactions have now been separated out. The use of small savings collection accruing in the public account of India by the government to finance the fiscal deficit will also be formalised. In one sense, the revised system of accounting will clearly bring out the treasury banking nature of these operations. It will amount to budgetary disintermediation of loans to states against small savings collections.
On growth assumptions for revenue projections
: Nominal GDP is expected to grow at 13 per cent.Real GDP is projected to grow at between 6-6.5 per cent. The inflation rate assumed is around 6.5 per cent. Industry is expected to grow at the real rate of around 6 per cent. Non-POL import growth is slated to expand at 10 per cent. Imports as a whole are projected to be up by about 14 per cent.
On current account deficit:
It is lower than expected. This is because imports have remained sluggish while invisibles, like software exports, have remained buoyant. Private remittances have also shown an upswing.
In the first half of the fiscal year, the expectation was that the deficit might tough three per cent of GDP. But a review in February showed, much to our surprise, that the figure would be much lower.
On why an amnesty clause was not included in the Gold Bond Scheme
RBI is expected to issue a separate notification. The finance minister did want an amnesty scheme. The estimates are that around Rs 5,000 crore would be mobilised through it.
On revenue projections from the telecomsector
The budget has taken accruals of only Rs 1,700 crore though it is said that the companies owe an amount of Rs 3,700 crore.
On the tax on stock options
Since stock options are a form of perquisite the employee will have to pay income tax on allotment, the taxable amount will be the difference between the allotment price and the market price.
On zero-based budgeting
There was a proposal to introduce zero-based budgeting in 1986 but now there can be no further delay. The Planning Commission has been taken into confidence and its recommendations have been incorporated in switching to zero-based budgeting
On the impact of diesel hike
Hike will not be inflationary as the hike merely restores the price prevailing two months ago.
On the new surcharges
The new surcharges are temporary and have been introduced to supplement the mega exercise of tax rationalisation. Since the rationalisation has been done across the board supplementary levies are necessary forsome time. The incremental tax burden on account of the surcharges is going to be miniscule.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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