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'Moderate tax regime & too many exemptions go ill together'

Speech of Finance Minister Yashwant Sinha while moving the Finance Bill 2002 for consideration in the Lok Sabha on April 26, 2002

Since the presentation of the Finance Bill on 28th February 2002, I have received, as in earlier years, a large number of representations from Members of Parliament, representatives of trade and industry and other interested parties. I have carefully considered all the representations and am convinced of the merit in some of them.

I wish to reiterate that a moderate tax regime and a large number of exemptions go ill together. I do recognise that those who are accustomed to enjoying the benefit of exemptions would like to resist the withdrawal of exemptions. While this cannot be accepted as a matter of rule, in some specific areas I am inclined to make some changes.

Many industry associations have argued that 4 per cent excise duty at different stages of production would lead to a cascading effect, which is undesirable. I accept the logic of their argument.

I, therefore, propose to exempt from excise duty specified parts and accessories of those items that have been subjected to 4 per cent excise duty. These include, parts and accessories of bicycles, parts of hand pumps, parts of toys and parts of umbrellas.

I also propose to allow exemption on waste and scrap arising in the course of manufacture of items that attract the new levy of 4 per cent.

Roofing tiles have been subjected to 4 per cent excise duty. Since the industry is labour-intensive and such tiles are used extensively by poor people, I propose to withdraw the excise levy on roofing tiles.

I am informed that excise duty on pre-recorded audio cassettes would accentuate piracy to the further disadvantage of genuine cassette producers. Keeping this in view, I propose to restore exemption from 4 per cent excise duty on such cassettes.

Sir, I am not convinced for removal of 4 per cent excise duty on any other item. I wish to emphasise that small-scale units producing these items are already eligible for exemption on clearances up to Rs 1 crore in a financial year.

Mr Deputy Speaker Sir, my budget proposals included a special package for the textiles industry. While I had reduced the overall burden of the excise duty on the textile fabrics, I had proposed withdrawal of certain exemptions relating to yarn and processed fabrics.

I had proposed that the exemption applicable to hand processing of textile fabrics by independent processors shall be confined to only three processes, namely scouring, hydro extraction and calendaring. I have received a number of representations for extending the exemption to some other processes also.

On a careful consideration of these representations, I propose to include padding (including back filling), damping and flanellete raising in the list of exempted processes even if carried on with the aid of power.

I also propose to reduce the rate of excise duty on hand-processed cotton fabrics processed by independent processors using open-air stenters from 12 per to 8 per cent. With the availability of deemed credit to such processors, the net incidence of duty will be only 4 per cent.

I also propose to exempt cotton waste yarn(up to two counts) cleared in hank form from this duty.

The House may recall that I had withdrawn the exemption from excise duty on granite manufactured in small-scale sector. I had proposed this to bring parity with marble.

Many Hon'ble Members have suggested to me that there could be another manner of achieving the parity. In deference to their wishes, I propose to extend the benefit of small-scale sector excise duty exemption scheme to both granite as well as marble.

I also propose to extend the benefit of SSI duty exemption scheme to Bengal Lights. I propose to exempt Avgas from the special excise duty. This would reduce the cost of training of pilots in the country.

Mr Deputy Speaker Sir, I had extended the exemption from Inland Air Travel Tax in respect of flights to and from North eastern States. I propose to extend similar exemption to Andaman Nicobar, Lakshadweep and Leh.

I have received representations that any surge in the import of dairy products like butter oil would affect the domestic producers of dairy products. In order to allay any such fears, I propose to increase the customs duty on dairy products including butter and butter oil from 30 per cent to 40 per cent.

The House may recall that I had proposed imposition of service tax on several new services including life insurance. I have received representations that the service tax proposed on life insurance services should be confined to risk premium part only. I accept this demand and the notification on the service tax would be issued accordingly.

In my Budget speech, I had announced that the Special Economic Zones would be entitled to procure duty free equipment, raw materials, components, etc, whether imported or purchased locally.

It is also the policy that supplies to the Special Economic Zones should be considered as physical exports for the purpose of duties, tariffs and central sales tax. I propose to move amendments in the Finance Bill to make appropriate changes in the Customs Act, Central Excise Act and Central Sales Tax Act to implement this policy.

After considering the various representations received from different quarters, I also propose to make some changes in my proposals relating to direct taxes.

While introducing the Finance Bill, I have proposed that the tax rebate under section 88 of the Income-tax Act shall be allowed at the existing rate of 20 per cent only to persons having taxable income up to Rs 1,50,000.

The rebate was proposed to be reduced to 10 per cent for persons having taxable income between Rs 1,50,000 and Rs 50,000. To mitigate the additional tax burden of this proposal on the middle-income group, I now propose to allow the rebate at the rate of 15 per cent to persons having taxable income between Rs 150,000 to Rs 500,000.

I also propose to enhance the maximum amount of investment eligible for rebate from Rs 80,000 to Rs 1 lakh, which will include Rs 30,000 specifically for investment in infrastructure bonds as against Rs 20,000 at present. These two concessions will, I am sure, satisfy the taxpayers in this range.

In the Finance Bill, I have proposed to tax dividends and income from mutual funds, except the equity-oriented funds, in the hands of the recipients at the rates applicable to them.

Such income will be subject to tax deduction at source at the rate of 10 per cent. Keeping in view the difficulties which may be faced by small taxpayers, particularly senior citizens, I propose to allow a deduction in respect of this income under section 80L of the Income-Tax Act, within the overall limit of Rs 9,000 provided in that section.

I also propose that tax will be deducted at source only if the amount received from the company or mutual fund exceeds Rs 1,000.

The 100 per cent deduction of export profits under section 10A of the Income-Tax Act is available to units set up in Special Economic Zones only till the assessment year commencing on 1.4.2009.

In consonance with the Exim Policy announced recently by the government, which seeks to give a prominent role to undertakings set up in SEZs, I propose to allow 100 per cent deduction to all SEZ units commencing production on or after April 1, 2002 for a period of five years, and thereafter, at 50 per cent for the next two years.

Under the existing provisions, the tax holiday provided to export-oriented units under sections 10A and 10B of the Income-Tax Act is withdrawn if there is a change in beneficial ownership of the undertaking.

I propose to provide that this restriction will not apply in cases where an undertaking owned by a firm or a sole proprietary concern is transferred to a company by way of succession to a business, subject to certain conditions.

The tax incentive provided under section 80-IB to undertakings set up in industrially-backward states and districts was available only to units set up before 31.3.2002. I propose to extend this benefit to new units set up in such areas during a further period of two years ending on 31.3.2004.

In the Finance Bill, I have proposed that no part of the income of religious and charitable trusts and institutions can be accumulated for a period exceeding five years.

Considering the difficulties pointed out by various trusts and institutions, I now propose to allow accumulation of 15 per cent of their income for an unlimited period. However, any amount exceeding 15 per cent of income can be accumulated only up to a period of five years.

All subscribers to a telephone are presently required to file an income tax return under the one-by-six scheme, which is now in force in all urban areas in the country.

Several representations have been received requesting deletion of this criteria from the scheme, as telephones are now easily available even in smaller towns at a low cost, and owning a telephone may no longer be indicative of a potential taxpayer.

Considering these representations, I propose to substitute the criterion of subscription to a telephone under the one-by-six scheme with subscription to a cellular phone.

There are also other amendments proposed resulting in minor modifications to the provisions of the Bill.

Copies of the notifications regarding excise duty changes shall be laid on the Table of the House in due course.

The modifications in my proposals are estimated to involve a revenue loss of Rs 14.50 billion in respect of indirect taxes including service tax and Rs 7 billion in respect of direct taxes.

Sir, I had announced on the floor of the House that the maximum limit of Rs 200,000 per annum per person for investments in the government of India Relief Bonds will be removed in respect of retiring / retired employees, including those in the private sector, to enable them to put their entire terminal benefits in these bonds.

I am glad to inform that this scheme is being further liberalised to cover retired employees for reinvestment of any other savings attributable to employment in relief bonds without any monetary ceiling.

Sir, with these words I commend the Finance Bill for the consideration of the House.

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