Union
Budget 1997-98 In order to provide stability and confidence both to the individuals and corporates, the Budget for 1998-99 has not made any change in the rate structure either for individual or corporate taxes and raises the personal tax exemption limit from the present Rs. 40,000/- to Rs. 50,000/-. Standard deduction for salary earners having income upto Rs. One lakh has also been increased to Rs. 25,000/- from the current level of Rs. 20,000/-. Presenting his maiden Budget in the Lok Sabha today, the Finance Minister, Shri Yashwant Sinha announced the launching of three major new schemes i.e. SARAL, SAMADHAN and SAMMAN for simplifying tax returns, reducing litigation and quick realisation of arrears and for social recognition to honest tax-payers. For widening the tax net, Shri Sinha announced that the scheme introduced last year in 12 important cities making filing of income tax return compulsory for persons fulfilling two economic criteria out of four, the scheme is being extended to cover 23 more cities in the country. He said the net itself is being enlarged to include two additional criteria, namely, holding a credit card and membership of expensive clubs, taking the parameters to six. The Finance Minister said that anyone who fulfills one of the six criteria would have to file his income tax return. He said that through this "one -by –six" scheme, he was expecting to raise the total number of individuals filing income tax return by at least 50% during a full fiscal year. Efforts at checking tax evasion Saying that tax evasion continues to be a serious handicap, Shri Sinha said a new initiative was being proposed to make it obligatory for assesses to quote their PAN or GIR number mandatory in respect of certain high value transactions. These transactions would be: purchase & sale of immovable property; purchase & sale of motor vehicles; transaction in shares exceeding Rs. 50,000/-; opening of new bank accounts; fixed deposits of more than Rs. 50,000/-; applications for allotment of telephone connection and payment to hotels exceeding Rs.25,000/-. Simplification of tax return/Realisation of Arrears The Finance Minister for the first time proposed to introduce a simple one-page IT return form to be called SARAL applicable to all non-corporate tax-payers. SARAL can be filled up easily and is expected to make an important psychological difference in the mindset of potential tax assesses. Also introduced for the first time is a scheme called SAMADHAN which will apply both to direct taxes and indirect taxes and offer waiver of interest, penalty and immunity from prosecution of arrears of direct tax at the current rate. In respect of indirect tax where the adjustment rates have been sharp in the recent years, an abatement of 50 per cent of the duty would be available alongwith waiver of interest, penalty and immunity from prosecution. The Finance Minister also proposed to initiate legal measures to limit and expedite litigation. These include enhanced fees for filing appeals before appellate authorities. To recognise the important role played by an honest tax payer, Shri Yashwant Sinha for the first time introduced a scheme called SAMMAN to demonstrate society’s recognition of their important contribution to the national cause. He said the details of the facilities and recognition to be conferred on the taxpayers and PAN holders would be announced separately. Gift Tax to be discontinued Stating that Gift Tax has yielded very little revenue and has not been successful to curb tax evasion and avoidance, the Finance Minister proposed to discontinue the levy of Gift Tax on gifts made after the 30th September this year. At the same time plugging leakages of IT revenue through gifts, Shri Sinha proposed to tax gifts under the IT Act in the hands of the recipients. However, gifts from NRIs through banking channels will continue to enjoy exemption as at present, he said. Thrust on House Building activity The Finance Minister announced several incentives to encourage house building activities which include :
Tax incentives for social sector Other areas in the social sector for which new tax incentives were proposed by the Finance Minister included employment generation, improvement of environment, uplift of women, road safety, cooperatives and medical expenses of the handicapped. To encourage employment of additional work force, Shri Sinha proposed a new deduction to companies equal to 30 per cent of additional wages paid to the new workmen as a deduction against profits subject to certain conditions. For improvement of environment he proposed 100 per cent deduction subject to a ceiling of Rs. 5 lakhs, to undertakings engaged in collection or processing of biodegradable waste. He also announced 100 per cent deduction for activities which encourage production of bacteria induced fertilizers. Similar benefits were also announced for establishing and running educational institutions and hospitals in rural areas exclusively for women and children workers employed in factories. Activities which promote road safety and traffic awareness and prevent accidents will be eligible for 100 per cent deductions. Promotion of Sports The Finance Minister announced setting up of a National Sports Fund for the promotion of sports and games in the country. He said that donations to the fund would be eligible for 100 per cent deduction. Tax Holidays for infrastructure sector Shri Yashwant Sinha announced 100 per cent tax holiday to industrial undertaking located in any industrially backward state or district till the year 2000. Similar extension of tax holidays to power sector up to the year 2003 and to new refineries set up after 1st October, 1998 was also granted by the Finance Minister. In a major decision, Shri Sinha extended infrastructure status to inland waterways and inland ports. Tax holiday benefits for radio paging services and services provided by satellite owners for telecommunication. Demands of industry and business addressed In the 1998-99 Budget, certain categories of business reorganisations are proposed to be freed from any additional tax liability or loss of tax benefit. Intangible assets are to be allowed depreciation at the rate of 25 per cent. The period of amortisation of preliminary expenses is to be reduced from 10 years to 5 years and stock lending is proposed to be exempted from capital gains. The provision to maintain an account book in case of business income exceeding Rs. 40,000 or total turnover exceeding Rs. 5 lakhs has been liberalised to enhance these limits to Rs. 1,20,000 and Rs. 10,00,000 respectively. The Finance Minister has provided relief to the film industry by reducing the amortisation of cost incurred on production and distribution by reducing the amortisation period from 180 to 90 days. This is expected to enable the film industry to quickly recoup the cost of film production and distribution. Film producers will now have to furnish information in respect of payments over Rs. 25, 000 instead of earlier Rs. 5,000. Shri Sinha proposed that any money paid by extortion will not qualify for deduction as business expands and the provision will be applicable retrospectively since the inception of IT Act, 1961. He also proposed to increase the limit of room rent in hotels for the purpose of attracting expenditure tax from Rs. 1200 to Rs. 2,000 per day. Indirect taxes Stating that the excise regime was characterised by a multiplicity of rates and punctuated with numerous ad hoc exemptions until a few years ago, the Finance Minister said it is his Government’s objective to introduce greater transparency in a system through a significant rationalisation of rates. He said the ultimate objective is to move towards Central Value Added Tax system which can then be merged with a generalised Value Added Tax system. For providing a level playing field to the domestic industry the Finance Minister has proposed an additional non-modvatable levy of 8 per cent on imports which is approximately equal to local taxes on domestic producers. The new levy will not apply to crude oil, newsprint, capital goods sector under a special tariff regime or goods which are subjected to additional duties of excise in lieu of sales tax, gold and silver imported by passengers or other nominated agencies and life saving drugs that are free from customs duties. Similarly goods imported for subsequent trading have also been left out of its purview since they bear the burden of Sales tax at the time of first sale. The new levy will also not apply to inputs imported under export promotion schemes. The Finance Minister increased the custom duty on cold rolled coils of iron and steel from 25 to 30 per cent while reducing duty on stainless steel melting scrap from 10 to 5 per cent and on refractory ceramic goods from 40 to 30 per cent. The duty on rot copper is proposed to be raised from 30 per cent to 35 per cent whereas in case of ferrous and non-ferrous metals there is no change in the duty. The duty on caprolactum, the raw material for making nylon yarn has reduced to the level of 25 per cent to bring it at the same level as the major textile intermediates. Shri Sinha said that since the decentralised sector of the textile industry generates avenues for employment it deserves to be encouraged by reducing costs. He proposed to reduce customs duty on apparel grade raw wool from a total of 25 per cent to 20 per cent. Similarly, machinery required for viscose filament yarn and woolen industry was given a concessional duty of 10 per cent. The customs duty on paper and paperboard was increased from 20 to 30% whereas it was reduced from 10 to 5% in case of newsprint. The newsprint has been exempted from applicability of across the board 8% special additional duty. The customs duty on photographic chemicals has been raised from 25 to 30% and duty on citric acid was increased from 30 to 40%. However, the customs duty on jumbo rolls of cinematographic films has been substantially reduced from 25% to 10%. The duty on industrial diamonds has been reduced from 30 to 20 per cent. Machinery for leather industry has been given concession in the form of substantial reductions in customs duty from 20 to 5%. Similarly, duty on saddle trees has been reduced from 30 to 10%. In case of inputs for manufacture of drugs for treatment of life-threatening blood disorder such as Thalassaemia and AIDS, the customs duty has been reduced from 30 to 5%. Thrust on Information Technology To provide a boost to information technology for free exchange of information the Finance Minister has sought to reduce the duty on floppy disk drives, hard disk drives and CD ROM drives from a total of 12% to 5%. He also proposed to reduce duty on computer parts excluding PPCB from a total of 15 to 12%. The duty on cathode ray tubes for colour monitors for computers has been reduced from 15 to 5% and on telecom software the duty been reduced to 30% from the existing 40%. To encourage the domestic telecom equipment sector duty has been reduced on such equipment to 20%. Customs duty on eco-friendly and energy saving material has been reduced. These include solar cells, button cells, CD mechanism etc. Road Development For faster development and good roads in the country, an additional tax @ Re. 1 per liter on petrol has been imposed with immediate effect. This is expected to generate an amount of Rs. 790 crores which will be used for development of roads and entirely go towards augmenting the funds of National Highways Authority of India. The concessions already available for import of equipment for road construction is proposed to be continued. Pricing of Petro-products aligned with APM In order provide a tax code which is consistent with dismantling of administered pricing mechanism of petroleum products in a phased manner the import duty on down stream products like furnace oil, LSHS, HSD oil, motor spirit and ATF is proposed to be brought down to the level of 10% from the current 15%.. The customs duty on crude oil has been brought down from 27 to 22% and the loss is to be recouped through increase in excise duty on motor spirit from 20% to 35%. Customs duty on imported kerosene for parallel marketing has been fixed at 32% including a special duty of 2%. Importance of Small Scale Sector With a view to encouraging the small scale sector for exploiting their full potential and employment generation the exemption limit for excise purpose has been raised from the present Rs. 30 lakh to Rs. 50 lakh, an increase of about 65%. The clearances between Rs. 50 lakhs and Rs. 100 lakhs shall be charged to a flat nominal rate of 5%. Stating that this would result in a revenue loss of Rs. 300 crore a year, the Finance Minister said that it is a small price to pay to restore the health of this vital sector of our economy. Excise duty The Finance Minister said that over the years the scheme of MODVAT credit has been considerably liberalised. However, the amount of MODVAT credit availed has grown unexpectedly fast in recent years suggesting misuse of the MODVAT credit scheme in the absence of the comprehensive computer network for cross-checking the invoices. The Finance Minister proposed that the availibility of MODVAT credit will be restricted by 5% of the duty paid in the case of inputs used in the manufacture of excisable goods. However, no restriction is placed on the MODVAT credit concerning capital goods. Stressing the need to rationalise excise duty rate structure, Shri Yashwant Sinha proposed a duty of 8% on certain commodities, they include packaged tea, branded butter, spices, edible preparations, sewing machines, preparations of meat and fish, skimmed milk powder, spectacle lenses and frames, slide fasteners and tractors not exceeding 1800 CC. Excise duty on exempted articles of plastics will be at a flat rate of 5% on clearances in excess of Rs.1 crore in a financial year. Excise duty on medical instruments and appliances as also on pollution control equipment to be increased from 5% to 8%. Shri Yashwant Sinha said a number of commodities are at present attracting an excise duty of 8% and some of them can bear a higher duty. He proposes to increase the duty to 13% on the items like malt, certain types of cartons, medical furniture, sun glasses and unrecorded audio cassettes. The duty on arms and immunition is being increased from 18% to 25%. However, arms and ammunition for the military services will continue to be exempt from excise duty. Multi-utilities and solid or cushion tyres will attract 5 more per cent excise duty. The duty on marble tiles is being increased from Rs.30 to Rs.40 per sq.mtr. The Finance Minister announced reduction of excise duty on effluent treatment plants, diesel engine sets, surgical and medical examination gloves, potassium iodates, electronic calculators, pagers, cellophone and PVC components. 100% exemption from excise duty is being proposed to wood-free particle boards and fibre boards made from agro-based residues. Recorded audio cassettes, video cassettes intended for television broadcasting would be exempted from excise duty. The exemption for computer software will now be broad-banded to cover all software. The Finance Minister told the House that the smokers have to pay more as the excise duty on cigarettes is being increased from 6% to 11%. However, excise duty on matches manufactured in the cottage sector reduced by half per 100 boxes. A small reduction is also being made in respect of matches manufactured by other sectors. The maximum retail price base excise levy introduced last year is to be extended to few more commodities like chocolates, malted food preparations, glazed tiles, razor blades, radio sets, domestic electric appliances and pan masala. To widen the tax base, the Finance Minister proposed service tax on some new services. They include architects, interior decorators, management consultants, chartered accountants, real estate agents and market research agencies. He, however, announced abolition of service tax payable by outdoor caterers and pandal contractors. Shri Yashwant Sinha said the customs duty proposals are likely to yield a net gain of Rs.3304 crores in one year. To increase the level of voluntary compliance and simplification of tax procedures, Shri Sinha announced setting up of an expert group to recast the entire excise law. A new excise law would be introduced in the next Budget Session of the Parliament. The Minister also said that a settlement commission will be set up to look into the disputes relating to customs and excise duties and an authority for advance tax rulings for excise and customs to help foreign investors. Shri Yashwant Sinha indicated that the customs and central excise departments are being strengthened and a citizen charter is being released shortly to lay down the citizen rights and the obligations caused on the customs and excise officials. Turning to the proposals on postal services, the Finance Minister announced that there will be no change in the tariff for post card and registered newspapers. However, the rate of competition post card is being raised from Rs. 2 to Rs. 3, inland letter from Rs.1 to Rs.1.50, a letter from Rs. 2 to Rs. 3. Parcel charges are also proposed to be increased. Concluding his speech, the Finance Minister said that the total expenditure of the central government for the 1998-99 would be marginally reduced to Rs.2,67,927 crore while the net revenue receipts and non-debt capital receipts would increase to Rs.1,76,902 crores. The revenue deficit is placed at Rs.48,068 crore which is 3% of GDP and the fiscal deficit is placed at Rs.91,025 crore which is 5.6% of GDP. Calling upon the people to join to build a better future for every man, woman and child, Shri Yashwant Sinha concluded his speech by quoting the words of Ramdhari Singh Dinkar " The stars of the dark night are fading. The whole sky belongs to you." |