The Hindu Business Line : Budget goes pro-investment; new taxes kept to minimum — FBT modified; small cars to cost less on duty cut; tobacco taxed

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Budget goes pro-investment; new taxes kept to minimum — FBT modified; small cars to cost less on duty cut; tobacco taxed

Alok Mukherjee

The Rs 10,000 limit for contributions to some pension funds eligible for exemption under Section 80 CCC is to go and such contributions are also to be included within the Rs 1 lakh limit

GETTING EVERYTHING RIGHT: The Finance Minister, Mr P. Chidambaram, addressing the post-Budget news conference in the Capital on Tuesday. — Kamal Narang

New Delhi , Feb. 28

The Finance Minister, Mr P. Chidambaram's 2006-07 Budget presented to Parliament on Tuesday is neither a dream budget nor a nightmare, but at the same time provides an enabling environment for increased investment flow especially into the infrastructure sector.

No fresh taxes have been imposed and income and corporate tax rates have not been changed. But service tax becomes more biting with the rate to be raised from 10 per cent to 12 per cent and coverage extended to 15 new items. It was also made clear that service tax would be a major revenue source in the future too since the Minister announced the intention to move towards a unified Goods and Service Tax (GST) by 2010 and converge the service tax rate with the central excise rate which currently stands at 16 per cent.

Customs, excise duty cuts

Mr Chidambaram also announced the expected cut in peak customs duty from 15 per cent to 12.5 per cent for non-agricultural products but at the same time imposed a four per cent countervail duty on all imports, except a few items, mainly as a substitute to value-added tax (VAT) on imports. The excise duty on small cars is also to come down from 24 per cent to 16 per cent, thus making such cars cheaper and also act as an incentive for more domestic and foreign manufacturers to get into this area.

On savings, the Budget proposes Section 80C benefits for bank deposits for five years and above which means such deposits would qualify for tax exemption and be included in the overall limit of Rs 1 lakh per year for specified savings that are tax free.

Also, the Rs 10,000 limit for contributions to some pension funds eligible for exemption under Section 80 CCC is to go and such contributions are also to be included within the Rs 1 lakh limit. The Budget, however, falls short on the expectations of the corporate sector.

Mat raised

The Fringe Benefit Tax continues on the statue, but with some modifications. The Minimum Alternate Tax (MAT), which was at 7.5 per cent of the book profits, is to be raised to 10 per cent, but MAT-paying companies can take credit for the tax over seven years against five years now and also adjust MAT credit while calculating interest liability. The Securities Transaction Tax is to go up by 25 per cent across the board.

Mr Chidambaram's package also includes interventions to help the tea and vanaspati industry, special coal allocation for the power sector along with a proposed change in the definition of captive mining to help power, cement and fertilizer units to get assured supplies. The Finance Minister has, however, not touched the recommendations of the Rangarajan committee for the petroleum sector, though the recommended excise and custom duty changes could be announced at a later date. However, investments into the petroleum sector are to be encouraged with three special zones to be set up this year for petroleum, chemicals and petro-chemical complexes.

Social, rural sectors

Also on expected lines, the Budget has a heavy dose of enhanced allocation for the social and rural sectors, including relief for farmers in the form cheaper short-term credit (crop loans) at 7 per cent interest.

The Finance Minister also reported good budget management during 2005-06 by managing to keep the fiscal deficit at 4.1 per cent of the gross domestic product against the original target of 4.3 per cent. For the next fiscal, he has pegged for an even lower fiscal deficit of 3.8 per cent of the GDP.