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February 28, 2001 | Feedback |
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Looking good from all anglesA pleasant surprise was in store for all who expected the finance minister to use Gujarat earthquake as the justification of a fresh round of taxes. Infrastructure development is priority The Union Budget 2001-02, the fourth in the series presented by Finance Minister Yashwant Sinha would receive top ratings from most analysts on the measures announced for the ensuing fiscal year. The focus of the budget has been clearly the spurring of investments in infrastructure sector through enhanced tax holiday periods. Core infrastructure projects such as roads, highways, rail system, water supply, sanitation and irrigation can avail a ten year tax holiday during their initial twenty years, while airports, ports, inland waterways, industrial park and generation & distribution of power would similarly be entitled to a ten-year tax holiday out of their initial fifteen years. Also, telecom sector has been the recipient of largesse from the finance minister in the form of retrospective concessions in terms of the five-year tax holiday and the subsequent 30 per cent tax deductions that were available only to those that commenced operations before March 31, 2000. Excise Rationalisation Further rationalisation of excise duty was unexpected this year and the finance minister pulled a rabbit out of his hat by reducing the three rates of special excise duty to a single 16 per cent rate. With this the government expects that 80 per cent of the entire excise revenues will emanate from the CENVAT rate of 16 per cent and 17 per cent from the combined rate of 32 per cent. The finance minister must be lauded for his attempt to do away with discretionary exemptions, simplify and rationalise the tax regime with a view to ensuring better compliance and growth in tax revenues. Prayers of the automobile sector were answered when the finance minister delivered a double dose of benefits in the form of lower excise coupled with duty protection against second hand imports. The cup of joy runneth over The capital markets have reason to cheer with Sinha providing a major tax incentive to IPO investments made out of long term capital gains realised on sale of securities and units. Better dividend distribution has also been made possible with the reduction of dividend tax to 10 per cent from the 20 per cent. The icing on the cake has been the removal of the 10 per cent corporate tax surcharge payable by companies. The hike in FII investment limit in Indian corporates to 49 per cent would add further fillip to the capital market. The salaried assessee was not left out. Removal of the 15 per cent surcharge and the enhancement of deductions in respect of self-occupied property as well as rented property were finance minister's budget gifts. The reason behind the positive gestures is not hard to fathom. Increased compliance resulting in 60.39 per cent growth in direct tax revenues in the past two years coupled with the doubling of the number of assessees since Mar 98 to 23 million this year have obviously reinforced the finance minister's move towards a lower tax regime. Tightening the belt Expenditure management has also been the thrust of finance minister's initiatives this year. Downsizing of the government is being consciously attempted. Freezing of fresh recruitment at 1 per cent of civilian staff strength is expected to bring about a decline of 10 per cent of the manpower in five years. The government has committed to implement the recommendations of the Expenditure Reforms Commission by July 31, 2001. Southward bound With the clear objective of moving towards lower interest rate regime the finance minister has taken a bold step of reducing administered interest rates governing the provident fund and special savings schemes by 150 basis points and has committed that the benefit of reduction on interest rates on small savings deposits will be passed on to state governments. Interest rates on central government loans to states have also been reduced by 50 basis points. Industrial Restructuring The finance minister has introduced pragmatic, but politically sensitive proposals to allow undertakings employing less than 1,000 workers in specified industrial establishments to implement layoffs, retrenchments or closures without obtention of prior approvals from government authority , coupled with safeguards in the form of group insurance cover and increased separation compensation. Appropriate legal amendments and enactments are proposed to be introduced to facilitate industrial restructuring. The Sick Industrial Companies (Special Provisions) Act is being repealed. The Union Budget 2001-02 places the fiscal deficit at 4.7 per cent of GDP. Once again disinvestment proceeds are estimated at Rs 120 bn notwithstanding the previous failures. The revised estimates of 2000-01 indicate that the government has been able to rein-in the fiscal deficit at 5.1 per cent. This appears to have been achieved by a substantial reduction in the capital account of both plan and non-plan expenditure and in spite of the failure to meet the disinvestment targets. In sum… The Budget has all the ingredients of a winner, but implementation will hold the key. |