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Rollback may cost Centre Rs 80 billion

BS Economy Bureau

A rollback of key budget proposals on the withdrawal of Section 88 benefits, the service tax on life insurance premiums and the 50 basis point cut in administered interest rates can lead to a loss of Rs 80 billion to the exchequer.

According to senior finance ministry officials, a review of the tax proposals will be made only after Finance Minister Yashwant Sinha returns to Delhi. They, however, feared the Budget might lose its edge after the review.

Officials said the loss on account of the tax rebate of 10 per cent (20 per cent earlier) under Section 88 would be about Rs 50 billion. The restoration of the 20 per cent rebate will benefit about 12.64 per cent of the 28.2 million tax assessee base in the country. While 2.82 million assessees were in the Rs 150,000 to Rs 200,000 category, there were 744,000 assessees in the Rs 200,000 to Rs 500,000 category, they added.

Exempting life insurance premiums from the 5 per cent service tax will deprive the government of about Rs 10 billion. If the tax was to be imposed only on the first premium income, it could have garnered about Rs 10 billion because premium income on new policies during the year was expected to be between Rs 180 billion and Rs 200 billion.

Ministry sources said the rollback of the proposal to cut administered interest rates by 50 basis points would be the biggest setback.

This will adversely affect savings on interest on fresh government borrowings and accretions to small savings schemes. Overall, this will pave the way for the emergence of a high-cost economy.

With market borrowings for the current fiscal pegged at Rs 1,490 billion, the Centre will have to shell out at least Rs 5 billion every year if the cut in administered rates is rolled back. Also, the Centre will have to pay more on accretions to the small savings kitty estimated at Rs 400 billion in 2002-03.

Finance ministry officials admitted there was considerable pressure on two other proposals: the shift in the incidence of dividend tax from companies to shareholders and the partial withdrawal of tax deduction benefits for units in software technology parks under Section 10A.

The revenue department expected to raise Rs 7 billion from the tax on 10 per cent of the profits of such units.

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