The Indian Budget 1996-97 The Indian Economy Overview

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Speech of
Shri P. Chidambaram
Minister of Finance
22nd July, 1996
PART B


79.	Now, I turn to my tax proposals. 

  

80. 	The  good news is there are no new direct taxes save one 

and even that solitary new tax,  I am confident,  will be  almost 

universally welcomed. 

   

81. 	There  are pressing demands from all sections of society 

to  raise  the threshold limit for personal income-tax  from  the 

existing level of Rs.40,000 to at least Rs.60,000.  Each increase 

of Rs.1,000 in the threshold limit will cost the exchequer Rs.150 

crore and, since 77.5% of this loss  will be borne by the States, 

any  major concession on this front will put a severe  strain  on 

the  States' financial resources.   Besides,  when the direct tax 

base  is already narrow - only 110 lakh persons pay income-tax  - 

no  Finance Minister can afford to let 20 or 30 lakhs of them  go 

out of the net.   However, I accept the need to provide relief to 

the assessees in the first tax bracket,  especially the  salaried 

class.   I  propose  to do so in two ways:  first,  I propose  to 

reduce  the   income-tax rate for the first bracket from  20  per 

cent  to  15 per cent.   This benefit will be  available  to  all 

assessees.  I  also propose to raise the standard deduction  from 

Rs.15,000  to Rs.18,000  for salaried employees having an  income 

upto  Rs.60,000.  Thus,  a  salaried employee with an  income  of 

Rs.60,000  per  year,  making  the minimum  contribution  to  his 

provident fund, will now pay no tax at all. If he has no savings, 

he will still pay only Rs.300.

   

82. 	We  owe a special consideration to our senior  citizens.  

At present,  senior citizens benefit from a special tax rebate of 

40% upto an income level of  Rs.100,000.  I propose to raise this 

to Rs.120,000.

   

83.	House-owners, residing in their own houses that have been 

financed by borrowing,  deserve relief. The deduction of interest 

payments  of  Rs.10,000  allowed to them from their  income  from 

property is proposed to be raised to Rs.15,000.

   

84. 	As another relief measure,  I propose to raise the limit 

under section 80D of the Income-tax Act for deduction in  respect 

of  insurance  on  the health of the individual  and  his  family 

members from Rs.6,000 to Rs.10,000.

    

85. 	I have already mentioned the new scheme of personal-cum-

family  pension  being introduced by LIC.  In order to  encourage 

savings in this form,  I propose to allow the contribution to the 

pension  fund to be deducted from taxable income upto a limit  of 

Rs.10,000  per annum.    I also propose to exempt the  income  of 

such a pension fund in the LIC from the levy of income-tax.

    

86. 	At present,  a five year tax holiday  is available under 

section  80-IA to enterprises engaged in developing,  maintaining 

and operating infrastructure facilities such as roads,  highways, 

bridges,  new  airports,  ports and rail systems.   I propose  to 

extend this incentive to  investment in irrigation, water supply, 

sanitation and sewerage systems.

    

87. 	I also propose to provide a five year tax holiday  under 

section  80-IA  of  the Income Tax Act to  companies  exclusively 

created to participate in research and development activities.  I 

am  also simplifying the existing procedure for  giving  weighted 

deduction  under  section 35(2AA) of the Income-tax  Act on  sums 

paid  for  scientific  research to a  National  Laboratory  or  a 

University  or an Indian Institute of Technology by deleting  the 

condition of approval by an outside body.

    

88. 	Infrastructure  funds have become an important source of 

capital  to  finance  infrastructure  projects.    In  order   to 

encourage  such  funds  established  to  mobilise  resources  for 

financing  infrastructure  facilities,  I propose to exempt  them 

from  income-tax.   Any dividend,  interest or long-term  capital 

gains of such funds or companies from investments in the form  of 

shares  or long-term finance in any enterprise set up to develop, 

maintain and operate an infrastructure facility will be free from 

income tax.  

    

89.	I also propose to allow investment in approved debentures 

or  equity shares of public companies as eligible for tax  rebate  

under  section  88  if the proceeds of  such  public  issues  are 

applied to create a new infrastructure facility or to generate or 

distribute power.   In the case of such investment,  the limit of 

Rs.60,000 under section 88 will be raised to Rs.70,000.

    

90.	Corporate tax rates have been reduced and simplified over 

the  past  few years and the results have been  very  encouraging 

with a significant increase in corporate taxes as a percentage of 

GDP.   However,  there are two issues which need to be addressed.   

The  first  is  the promise made in the past that  the  corporate 

surcharge will be temporary.  The other is the phenomenon of zero 

tax  companies which,  according to many observers,  reflects  an 

excessive  degree  of laxity in the tax  regime.   I  propose  to 

respond to the two issues as follows :

    

	(i)    I   am   reducing  the   rate   of   surcharge  on 

               corporation  tax from 15% to 7.5% and hope to take 

               a similar step in my next budget.  The reduced tax 

               burden will benefit all companies big and small.

    

       (ii)    I   propose to introduce a 'Minimum Alternate Tax' 

               (MAT)  on  companies.  In a case where  the  total 

               income  of  the company,  as  computed  under  the 

               Income  Tax  Act  after availing of  all  eligible 

               deductions,  is less than 30 per cent of the  book 

               profit,  the  total income of such a company shall 

               be deemed to be 30 per cent of the book profit and  

               shall   be  charged  to  tax   accordingly.    The  

               effective  rate works out to 12 per cent  of  book 

               profit   calculated   under  the  Companies   Act.  

               Companies engaged in the power and  infrastructure 

               sectors will,  however,  be exempted from the levy 

               of MAT. 

    

91.  	As  a step towards achieving a level playing  field  for 

Indian  companies vis-a-vis the foreign companies,  I propose  to 

reduce the tax on long-term capital gains in the case of domestic 

companies from 30 per cent to 20 per cent.

    

92. 	In  order to encourage savings and to channelise savings 

into investments in priority sectors of the economy, I propose to 

exempt from tax long-term capital gains if the net  consideration 

received  or  accruing from the transfer of the capital asset  is 

invested  in  specified assets for a period of  three  years  or, 

alternatively,  if  the  entire  capital gains  are  invested  in 

specified assets for a period of seven years.   The assessee will 

now have a choice of two new savings instruments.

    

93. 	I  also  propose  to allow depreciation in the  case  of 

fractional  ownership  of assets because of the  need  for  joint 

financing of big,  capital intensive projects by  a consortium of 

financiers having fractional shares in the assets.  

    

94. 	In order to promote efficiency in industry, I propose to 

provide  that unabsorbed depreciation will be carried forward for 

a  period  of eight years only  in the same  manner  as  business 

losses.

    

95. 	The practice of sale-and-lease-back of assets results in 

passing of very high depreciation to the leasing concerns.   This 

needs to be curbed.   Hence,  I  propose to provide in the Income 

Tax  Act  that in case of sale-and-lease-back  transactions,  the 

written down value of the asset,  in the hands of lessee, who was 

the previous owner,  will be treated as cost in the hands of  the 

lessor.  This measure, while not affecting bonafide transactions, 

will  prevent  loss-making concerns from indulging  in  unhealthy 

trade-off of depreciation. 

    

96. 	I  find it unreasonable that commercial properties,  not 

used by the assessee as his business, office or factory premises, 

should  be  outside the  levy  of  wealth-tax.    Accordingly,  I 

propose  to plug this unintended loophole and levy wealth-tax  on 

such commercial properties.     

    

97.	Other measures of tax relief proposed by me include -

       

     (i)  Allowing  a  special  deduction  of  Rs.15,000  to  the 

          patient or guardian of a patient of protracted diseases 

          like  cancer or AIDS involving considerable expenditure 

          on treatment.

    

    (ii)  Exempting  under section 10(24) of the Income  Tax  Act 

          the  income  of  an  Association  of  Registered  Trade 

          Unions.

    

   (iii)  Extending  100 per cent deduction under section 80G  of 

          the Income Tax Act to -

    

	  (a)  Donations   made   to  Illness  Assistance   Funds 

               established  by  the Central  government  and  the 

               State  governments to meet the medical expenses of 

               the poorest of the poor;

    

          (b)  Donations  made to State and National Councils  of 

               Blood Transfusion recently set up by the  Ministry 

               of Health and Family Welfare; and

    

	  (c)  Donations  made to the three funds established  by 

               the  armed  forces of the country.  These are  the 

               Army  Central  Welfare  Fund,   The  Indian  Naval 

               Benevolent Fund and the Air Force Central  Welfare 

               Fund.   This  is  my  way of  saluting  the  brave 

               officers and jawans of our armed forces.

    

98. 	As a part of our obligation to SAARC I am exempting from 

income tax the income of SAARC Fund for Regional Projects (SFRP).

    

99. 	In order to promote industrial development in the North-

Eastern  region  of  the  country,  a  North-Eastern  Development 

Finance Corporation was  established in August,  1995.  I propose 

to exempt its income from tax. 

    

100. 	These   proposals   are    likely   to  result   in   an  

improvement  of revenue under direct taxes which is estimated  at 

Rs.912 crore.

    

101. 	I  shall now  come to the proposals relating to indirect 

taxes.

    

102.	 Over the last few  years steps have been taken to reform 

our  indirect  tax  structure by reducing the  number  of  rates, 

removing  exemptions and by switching over to  ad-valorem  rates.  

On  the customs side  the peak rate of duty was reduced to 50% in 

1995-96  accompanied  by  reduction in rates  down  the  line  in 

respect  of  all commodities.   Central excise duties  were  also  

revamped  and  moved  closer  to  a  Value  Added  Tax  with  the 

introduction  of Modvat  for capital goods and extension of input 

credit   facilities  to  almost  all  items  necessary  for   the 

manufacture  of  goods.   These changes have contributed  to  the 

growth in industrial production, simplified the tax structure and 

brought about greater transparency.  They have also led to strong 

growth in revenues,  with indirect tax collections increasing  by 

19  per  cent  in  each of the last  two  years,  in   spite   of 

substantial  reduction  in rates.  The Common  Minimum  Programme 

mandates  the  government  to continue  with tax  reforms  and  I 

propose to do so.

    

103. 	Keeping  in  view  the  twin objectives  of  making  our 

industry globally competitive and providing it reasonable  levels 

of  protection  in  the transitional period,  I propose  to  take 

measured and calibrated steps in the matter of customs tariffs.

    

104.	The salient features of my proposals are-

    

     *    Reduction  in  customs duties  on crude oil and   other 

          basic petrochemical intermediates.

    

     * 	  Reduction  in  the  rates  of  customs  duties  on  raw 

          materials  and  inputs  such  as  chemicals,  plastics, 

          natural rubber and ferrous and non-ferrous metals.

    

     *    Substantial   reduction  in  customs  duties   on   raw 

          materials  and components required for giving a  thrust 

          to the electronic goods sector.

     

     *    Reduction   in  the rate  of  duty   on  computers  for 

          giving a boost to the software industry.

    

     * 	  Reduction  in  import  duty on selected   machinery  to 

          modernize the textiles and garment sector.

     

     * 	  Removal  of   several  anomalies in duty rates.

    

     *    Unification  of   rates on similar items  in  order  to 

          substantially  reduce disputes on classification and on 

          rates.

     

     * 	  Retention of only such exemptions which are  necessary, 

          for the present.

    

105. 	India  has  become  a major  producer  and  exporter  of 

chemicals.  This  industry has shown a healthy growth in the last  

two  years.  This  is  an area in which  India  can  exploit  its 

potential  of  trained  technical manpower and become  a  leading 

nation of the world in the production of chemicals.  To   achieve 

these objectives, I propose to take the following steps:

    

     *    Reduction  in the rate of duty on crude oil from 35% to 

          25%.

    

     *    Reduction  in  the rate of duty on bitumen from 30%  to 

          10%.

    

     *    Unification of rates at 10% on petro chemical  building 

          blocks such as cumene, toluene and cyclohexane.

    

     *    Reduction  in  the  rate of  duty  on  chemicals,  both 

          organic and inorganic, from 50% to 40%.

   

106. 	Our  textile industry employs millions of people.  It is 

necessary to modernise it and provide an environment in which  it 

can grow rapidly. I propose the following measures:

    

     *    Reduction  in the import duty on rayon grade wood  pulp 

          from 25% to 5%.

    

     *    Reduction   in   the   import  duty   on  acrylonitrile  

          from 20% to 10%.

   

     *    Reduction in  the rate of duty on DMT, PTA and MEG from 

          35%  to  25%;  however in the case of  caprolactum  the 

          revised duty will be 30%.

       

     *	  Reduction  in  the  rate  of  duty  on  artificial  and 

          synthetic fibres from 45%  to 30%.

    

     *    Unification  of  the rates of duty  on  nylon  filament 

          yarn, polyester filament yarn and viscose filament yarn 

          from the existing levels of 45% and 40% at 30%.

   

107.	I  also propose a major restructuring of excise duties in 

the textile sector, extending the  benefit of Modvat,  to which I 

shall  come  a  little later.  I am confident  that   with  these 

measures our textile industry will grow from strength to strength 

in the coming years.

    

108.	Our  power plants  face  a shortage of coal on account of 

growing demand and better utilisation of  installed capacity.   I 

propose to reduce the rate of duty on non-coking coal from 35% to 

20%.   I also propose reduction of duty on coke from the existing 

level of 25% to 20%.

     

109. 	Our  plastics  industry is coming of age.  I  propose  a 

reduction  of  duty  on plastics from 40%  to  30%.  Further,  on 

articles  of  plastics I propose a reduction  from  the  existing 

level of 50% to 40%.

    

110.  	In   regard   to   rates  of  duties   on   drugs   and 

pharmaceuticals,  I  propose to retain the zero  rate of duty  on 

life saving drugs.  I also propose to reduce the rate of duty  on 

all other allopathic medicines from 50% to 40%.  In order to make 

available  veterinary drugs commonly used I propose to reduce the 

rate on specified  veterinary drugs from 15% to 10%.

    

111.	There has been a persistent complaint  from industry that 

customs duty on metals is very high  and this makes it  difficult 

for  downstream  industry,   especially  capital  goods,   to  be 

competitive. Industry has been demanding that the rate of duty on 

metals should be brought down drastically. However, realising the 

need  to provide adequate time to our  metals industry to  adjust 

itself  to  global competition,  I  propose a  modest   reduction  

from  35% or 40% at present to a peak rate of 30%  on all  metals 

except nickel and aluminium. On unwrought aluminium and unwrought 

nickel  I  propose  to retain the current level of  10%  and  20% 

respectively.  On  wrought aluminium I propose to reduce the duty 

from 25% to 20% and on wrought nickel from 30% to 20%.

    

112. 	While  I do not wish to tamper with the rate of duty  on 

machinery  which stands at 25%,  I propose a reduction of duty on 

signaling and safety equipment for railways,  airports, sea ports 

etc. from the current level of 50% to 25%.

    

113. 	The last three years have witnessed a tremendous  growth 

in   our  electronic  industry  which  has  been  the  result  of 

enterprise as well as the stimulation provided by sharp reduction 

in customs duties.   In order to maintain this trend,  I  propose 

the following changes:

    

     *    On raw materials, from the existing 15% to 10%

     *    On components, from 25% to 20%.

     *    On  glass shells for colour TVs, from 30% to 25%.

     *    On colour picture tubes,  from 40% to 30%.

     *    On computers and computer peripherals, from 40% to 20%. 

     *    Finished  goods  will continue to attract 50%  rate  of 

          duty.

    

114. 	With a view to encourage sports in the country,  I  also 

propose to reduce import duty on sports goods from 50% to 30%.

    

115.   	In   order   to  give  relief  to  professional   press 

photographers  I  propose to allow them to import  free  of  duty 

photographic  equipment upto Rs.1 lakh.   A similar concession is 

also  being  extended  to accredited journalists  for  import  of 

personal computer, typewriter and fax machine. 

    

116. 	Telecommunication is a growing sector and will turn  out 

to  be   the   life-line  of our economy.  The  existence  of  an 

efficient  telecommunication  net work is  a  pre-requisite   for 

accelerated  economic  growth.  In order to give a boost  to  the 

efforts  being  made by the Department of  Telecommunications,  I 

propose   that   the  duty  on  parts   and   sub-assemblies   of 

telecommunication  equipment  be reduced from 35% to 30%  and  on 

finished  equipment  from  50%  to 40%.  In order  to  avoid  the 

temptation  to  smuggle  cellular  phones,  pagers  and  trunking 

handsets, I propose to reduce the customs duty on them to 30%.

    

117. 	Upgradation  of  medical  standards in  the  country  is 

extremely important.  I, therefore, propose to reduce the rate of 

duty  on specified equipment,  not generally made in  India,  and 

their  parts from 15% to 10% and on other medical equipment  from 

40% to 30%.

    

118. 	Edible oils now carry  a rate of duty of 30%. This is an 

important  item   of   daily food for the masses and  we  have  a 

chronic  shortage  of edible oils in the country.  I  propose  to 

reduce the import duty  on edible oils from 30% to 20%.

    

119.     Mr.  Speaker,  Sir,  earlier in my speech I dwelt on the 

dire  need to step up investment in infrastructure.  I  had  also 

detailed   the   sectors  to  which  I  propose  to  make   large 

allocations.    I    have  to  raise  resources  to  meet   these 

requirements.  I  intend to ask importers to share the burden  of 

building  the infrastructure in this country because, ultimately, 

it  will help raise production and enhance  competitiveness.   I, 

therefore,  propose  a levy of 2% as special customs duty on  all 

imports except those that carry nil rate of duty or are  imported 

at  nil  rate  of customs duty for export  production  under  the 

various duty free licences.  This levy will not apply to gold and 

silver  imported by eligible passengers  or  under special import 

licences.   This  is likely to yield about Rs.1600 crore  in  the 

current year.

    

120. 	Importers will be happy to know that the Reserve Bank of 

India  is  announcing today the  withdrawal of the interest  rate 

surcharge of 25% on import finance imposed in February, 1996.

    

121. 	I now come to my proposals regarding central excise.   A 

large  number of countries in the world today have a value  added 

tax  system  which has been recognised to be the  most  efficient 

form  of commodity taxation.  I am glad to note that  some  State 

governments  are moving towards the value added tax  system.  The 

last  few  years  of  reforms have taken us closer  to  having  a 

Central VAT, but there are still certain legal obstacles.

    

122. 	Our  central  excise structure still has  11  ad-valorem 

rates.  The  rates range from 0 to 50 per cent.    Ideally  there 

should be only four rates of excise duties -- zero, a  lower rate 

of excise duty on goods of mass consumption, a single normal rate 

on  all  other goods and a higher  rate on luxury  items.  It  is 

absolutely  necessary for us to move towards this rate  structure 

so  that  we  put  an end to  wasteful  litigation  and   have  a 

transparent and simple tax structure.  It was not possible in the 

time  available  to me  in preparing this Budget to achieve  this 

goal in the current year.  However,  I propose to take the  first 

step  this  year and I am confident that we will achieve a  four-

rate excise duty structure in another year or two.

    

123. 	I  propose  to integrate the tax on the  textile  sector 

with  the mainstream of central excise duties  by introducing the 

Modvat   principle in this sector.   Hon'ble  Members  are  aware 

that  at present excise duties  are levied at the fibre and  yarn 

stage  and there is only an additional excise duty,   in lieu  of 

sales tax,   on fabrics. This is one of the most inefficient ways  

of  taxation as it results in very high duties on  inputs,  which 

encourages evasion;   it does not capture value addition;  and it 

denies  the  industry  an opportunity of claiming  Modvat   input 

credit on capital goods,  chemicals and yarn. While modernisation 

of  other  industries  is  taking  place  speedily,  our  textile 

industry  has not been able to participate fully in this  process 

because  of this lopsided tax structure.  I,  therefore, make the 

following proposals.

    

124. 	I propose to reduce the  excise duty on yarn in the case 

of  polyester filament yarn from the current level of 50% to  40% 

and unify the rates on other yarn at 20%,  except nylon  filament 

yarn  and  cotton yarn for which the present rates of 30% and  5% 

respectively will be retained.   In order to provide Modvat   for 

the  textile sector,  I propose to impose a basic excise duty  of  

5%  on  cotton  fabrics and 10% on other fabrics  which  will  be 

collected at the processed fabric stage.  The processors would be 

in  a  position to Modvat  the duty paid on yarn imputed  on  the 

basis  that  yarn accounts for 50% of the value of  the  finished 

fabric.  I  have adopted a simple procedure of imputed value   to 

avoid  the  imposition of a basic duty on grey fabrics which  are 

manufactured  by thousands of powerlooms.  Such powerlooms  will, 

therefore,  continue  to be outside the  excise  net.   Composite 

mills and textile processors will be able to  avail themselves of 

Modvat    facilities  hitherto  not  extended   to   them.   This 

restructuring  of  excise  duty,  together with  the  substantial 

reduction  in customs duties on selected machinery and on  inputs 

for  the textile sector,   should provide a major boost  to   the  

textile  industry.   I  believe that this will also simplify  the 

calculation of drawback rates for garment exporters.

    

125. 	In  my proposals on customs duties,  I have proposed   a 

reduction in customs duty on crude oil from 35% to 25%.  This  is 

part of a restructuring and rationalisation of the duty structure 

aimed  at  encouraging  efficient refineries and enabling  me  to 

shift the duties from the input stage to the product  stage.    I 

propose  to  make  up the loss on customs duty by  adjusting  the 

excise  duty  upward from 10% to 15% on  all  petroleum  products 

except  LPG  and kerosene.   The proposed changes in customs  and 

excise  duties taken together  are revenue neutral and will  have 

no impact on the administered prices of petroleum products.

    

126. 	Honourable Members are aware that almost all articles of  

mass  consumption are already exempt from excise duty and a large 

number   of  other widely consumed articles carry a rate of  only 

10%.  I   propose to exempt some more articles from excise  duty. 

They are:

    

     (a)  Vanaspati and margarine;

     (b)  Writing  and printing paper supplied to all State  Text 

          Book Corporations;

     (c)  Animal fats and oils;

     (d)  Asbestos fibre; 

     (e)  Metallic ores; and 

     (f)  Tapioca products.

    

127.	I propose to reduce the duty on the following articles:

    

	(a)    Tooth paste, from 20% to 10%;

    

	(b)    Detergents, from 30%  to 25%; 

    

	(c)    Cartons,   boxes  and  bags   made  of  paper  and 

               paperboard, from 20% to 10%;

    

	(d)    Glassware produced by semi-automatic process, from 

               20% to 10%;

  

	(e)    Glassware used for table,   kitchen etc., from 15% 

               to 10%;

  

	(f)    Articles of asbestos cement, from 25% to 20%; and

    

	(g)    Ceramic  articles,  other than glazed tiles,  from 

               20% to 15%.

    

128.	I also propose to raise  the exemption limit for footwear 

from Rs.50 to Rs. 75 per pair.

    

129. 	The  rates of excise duty on motor vehicles are  not  in 

consonance  with the  accepted classification of such vehicles. I 

therefore propose the following rationalisation:

   

     (a)  Duty on motor cars and other motor vehicles principally 

          designed to carry not more than six persons,  excluding 

          the driver, will remain unchanged at 40%.

    

     (b)  Duty  on motor  vehicles principally designed to  carry 

          more  than  6  persons but not more  than  12  persons, 

          excluding the driver - 20%

   

     (c)  Duty  on other motor vehicles for transport of  persons 

          or goods - 15%.

   

     There is no change in the duty on two-wheelers or tractors.

   

130. 	 If  there  is one area in which a Finance Minister  can 

both tax and please,  it is cigarettes.   Today, however, I shall 

please  you only in a small way by proposing modest increases  in 

the  specific duties on cigarettes ranging from about 5% to  7[%. 

In  the  case of non-filter cigarettes,  not exceeding 60  mm  in 

length,  popularly called mini cigarettes, I propose to raise the 

tax by 25% from Rs.60 per thousand to Rs.75 per thousand.

    

131.	In order to encourage R & D efforts in India I propose to 

exempt goods developed and patented in India and concurrently  in 

specified countries  from the levy of excise duty for a period of 

three  years.  I am also rationalising the exemption from customs 

duty   for   import  of  equipment  and   consumables   for   R&D 

institutions. 

    

132. 	I  have  proposed  the addition of  potassium  chlorate, 

copper  powder  and  cigarette  lighters to  the  list  of  goods 

eligible for  duty exemption under the SSI scheme.  The reduction 

in  import  duties  proposed elsewhere  will  also  substantially 

benefit the small scale industries. In order to benefit  hundreds 

of  small  scale  manufacturers  of matches  I  have  decided  to 

dispense  with the physical control system operating on them  and 

introduce the self- removal procedure  freeing them from the  day 

to  day bother of control.   I hope SSI  match units will respond 

with substantial increase in payment of excise duties.

    

133.  	I  have proposed rationalisation of rates and exemptions 

both  in customs and excise in several  other   areas.   I  would 

not  like  to  take  the time of the House by  going  into  these 

details.

    

134.      Our excise procedures are outdated and not in tune with 

the   times.  They  need to be modified.  They  should  encourage 

voluntary  compliance   with  tax laws by the  tax  payers.  With 

effect  from  1st  October,1996,  assessees would  no  longer  be 

required  to  furnish copies of invoices along with  the  monthly 

returns. All that they would be required to furnish to the excise 

department  will  be a simple Return indicating the duty paid  on 

self- assessment   basis.    Wherever  possible  the   assessees' 

computers could also be linked to the Department's computers  for 

on line assessment.

    

135. 	 I also propose to introduce a scheme of selective  audit 

by  the excise officers and dispense with the existing scheme  of 

routine   examination  and  checking  of  returns  and  documents 

furnished  by  the assessees.  This scheme would also  come  into 

force from 1st October, 1996.

    

136. 	 I am sure that these changes would be widely welcomed by 

the  manufacturers  who are required to pay excise duties  and  I  

expect them to comply with the laws faithfully.   However, I wish 

to affirm  government's resolve to deal with tax evaders sternly. 

I am proposing suitable changes in the Customs and Excise Acts to 

provide  for  mandatory penalty,  together   with  interest,  for 

evasion of duties on account of fraud,  collusion,  mis-statement 

or  suppression of facts.  Henceforth,  the mandatory penalty for 

evasion of duty  on these counts shall be equal to the amount  of 

duty  evaded.  Tax evaders would also be required to pay interest 

starting from the first day of the succeeding  month in which the 

duty  evaded  ought  to  have been paid and  also  face  criminal 

prosecution. 

    

137. 	Mr. Speaker, Sir, the Central Excise and Salt Act, 1944, 

reminds us of the colonial era when excise duty was collected  on 

salt.  There is no excise duty on salt and hence the reference to 

salt is outdated.  I  propose to delete all references to salt.

    

138. 	The  Modvat   scheme which provides for duty  credit  on 

inputs  and capital goods  has been liberalised considerably over 

the past few years.  Still, there are problems about the coverage 

of certain inputs and  capital goods.    I propose to clarify the 

scope of eligible capital goods by   specifying the  heading  and 

sub-headings  of  the  tariff relating to capital  goods  in  the 

Modvat   Rules.  It  is  also a matter of concern that  there  is 

misuse  of  the  Modvat  credit   scheme.   At  present,   Modvat  

invoices  can be issued by any dealer registered with the  excise 

department  and  this  facility  is  reportedly  being   misused. 

Therefore,   I  propose  to  restrict  the  issue  of  Modvatable 

invoices by dealers upto two stages. Suitable provisions are also 

being made  in the Modvat  Rules for charging of interest  in the 

case  of  wrong  availment of Modvat  credit  and  for  mandatory 

penalty for misuse of Modvat  facility.

    

139. 	The  tax on services has come to stay.   With a view  to  

widening  the  tax  base,  I  propose  to  bring  in  advertising 

services,  radio  paging services  and courier services under the 

tax  net.  The tax on these services will be at the rate  of  5%. 

While  this measure is expected to yield Rs.150 crore in a   full 

year, I am taking credit only of Rs.70 crore in the current year.

    

140. 	My proposals relating to reduction in customs duties are 

estimated to result in a loss  of  Rs.650 crore in the  remaining 

part  of  the current financial year.  However,  by  taking  into 

account  receipts  from the special customs duty estimated to  be 

Rs.1600  crore,  there  will  be a net gain of  Rs.950  crore  in 

customs revenue.

    

141. 	In  the case of excise  duties,   including   additional 

excise  duties,  a gain of  Rs.760 crore is estimated.   Of this, 

the  States  are  likely to get Rs.384 crore as  their  share  of 

excise duties.

    

142. 	I now have something to say on behalf of my   colleague, 

the  Minister  of  Communications.   Postal rates,  some of which 

were last  revised  in 1990,  do  not  meet  even the direct cost 

of  most  of  the  services  resulting  in  increasing  budgetary 

support.   Notwithstanding  this,   no  change in  the  rates  of 

ordinary postcard,  letter,  parcels and other postal services is 

being proposed.  A modest increase is proposed only in respect of  

two services which are used for business and commercial purposes. 

The rate of the printed post card is being increased from 60p. to 

Re.1  and the registration fee is being increased from Rs.  6  to 

Rs.  8.   It has also been decided to introduce a new category of 

postcard,  called  Competition Postcard,  which alone may be used  

for  responding  to  any  competition  organised  on  or  through 

television,  radio,  newspapers or magazines.   It is proposed to 

remove the unintended subsidisation by fixing the tariff for this 

category of postcard at Rs.2.   The changes will take effect from 

a  date  to be notified after the Finance Bill  is  passed.   The 

revisions  proposed  are estimated to yield a modest  revenue  of  

Rs.38 crore in 1996-97, still leaving a large postal deficit.

    

143. 	Copies  of  notifications  giving effect  to  the  above 

changes in customs and excise duties will be laid on the Table of 

the House in due course.

    

144. 	My   budget  proposals  have many implications both  for 

the  expenditure  side and the  revenue  side.  However,  Hon'ble 

Members  will  be  pleased  to  know  that  the  end  result   is 

satisfactory.  The  revenue  deficit  in  1996-97  is  placed  at 

Rs.31,475  crore or 2.5% of GDP which is significantly lower than 

Rs.33,331  crore in RE 1995-96 or 3% of GDP.  The fiscal  deficit 

comes  to  Rs.62,266 crore in 1996-97,  which is lower  than  the 

figure of Rs.64,010 crore in RE 1995-96.  As a percentage of GDP, 

the  fiscal  deficit  is 5% in 1996-97 compared to  5.9%  in  the 

previous  year.  I hope to do better in my next budget  and  move 

along the path of reducing the fiscal deficit to below 4%.

    

145. 	Mr.  Speaker,  Sir,  at the end of this exercise,  I ask 

myself  what  is  a budget about?  While it is a measure  of  the 

health  of the economy,  it is also a mirror to the travails  and 

aspirations of the people.   2000 years ago,  Saint  Tiruvalluvar 

laid down the golden rule for the King's Ministers:

    

	"Iyattralum, eettalum, kattalum, katta		  

        Vakuthalam Vallath Arasu"

    

	(To be able to increase wealth, to lay it up and  guard,

	 And also well to distribute it, marks a royal lord.)

    

146. 	I have made an attempt to raise revenues without putting 

any  burden  upon  the  poor,  to allocate  large  resources  for 

agriculture, irrigation, infrastructure and the social sector, to 

provide  more  funds  for basic minimum  services,  to  give  tax 

reliefs  to  the salaried and the middle classes and  to  promote 

savings  and  investment.  I  have strived  to  serve  the  seven 

objectives that I declared at the outset.

    

147. 	The Common Minimum Programme is absolutely right when it 

says  that the country's GDP needs to grow at over 7% per year in 

the next 10 years in order to abolish poverty and unemployment.

    

148. 	I  believe that our economy is on a high  growth  curve. 

Wisdom dictates that we remain on that curve.  In order to do so, 

we need more reforms, not less. We need more resources, not less. 

We need more discipline,  not less.  And we need more compassion, 

not less.  If we remain true to the Common Minimum Programme,  we 

shall  overcome our difficulties and take India to the  frontline 

of  the  nations of the world.  This budget,  my  maiden  effort, 

attempts to blend - I hope in the right proportions - courage and 

compassion, reform and restraint and growth and social justice.

    

149. 	Mr.  Speaker,  Sir,  with  these  words,  I commend this 

budget to this august House.

    

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