Tax Measures:

Transcription

1 17 Tax Measures: Over the ast six years Government has simpified and rationaised the compex and opaque tax structure in a caibrated way with the objective of moderating rates, reducing number of exemptions, simpifying procedura rues and reguations, achieving better compiance and widening the tax base. The budget for continued the emphasis on simpification, ower rates and greater buoyancy. 22. Government has carried out a number of amendments in the Income Tax Act, 1961 through the Finance Bi, and an Ordinance dated September 16, 1997, with a view to promoting wefare, providing incentives for infrastructure deveopment, industriaisation, rationaisation of taxes and duties, checking tax evasions and avoidance and expanding the tax base through obigatory fiing of return based on certain economic criteria. The tax rate structure has been made comparabe to those prevaiing in other Asian countries, especiay ASEAN BOX 2.3 Direct tax measures The maximum margina income tax rate has been reduced to 30 per cent from 40 per cent and the owest to 10 per cent from 15 per cent. A new sab for incomes between Rs to Rs is inserted and the tax rate for this has been fixed at 20 per cent. These rates are appicabe to HUF aso. Standard deduction imit for saaried cass raised from Rs to Rs and for famiy pension from Rs to Rs Tax rates appicabe to domestic and foreign companies have been reduced from 40 per cent and 55 per cent to 35 per cent and 48 per cent respectivey. The surcharge on Corporate Tax has been aboished. The Minimum Aternate Tax (MAT) has been modified to exempt the exporters from the purview of the MAT and payments under the MAT aowed to be carried forward for five years against assessments under the reguar corporate income tax. The dividend taxation at the individua income tax eve has been aboished. Provision of 100 per cent deduction on donations made to Chief Ministers/Lt.Governors Reief Fund. Enhancement of tax rebate for Senior Citizens from 40 per cent to 100 percent subject to a imit of Rs The interest tax on government securities deducted at source is aboished. Five-year tax hoiday for teecommunication and power sector undertakings at the rate of 100 per cent foowed by 25 per cent (30 percent in the case of companies) deductions from profits. Five-year 100 per cent tax hoiday to notified industria parks commencing operation between 1st Apri 1997 and 31st March Seven-year tax hoiday to undertakings engaged in exporation of minera oi. Teecom services operators aowed amortisation of capita expenditure. The profits from houses and other activities, which are an integra part of highway infrastructure project, not to be taxed if the same is invested within 3 years in the highway project. For promoting tourism industry deduction of 50 per cent of profit for ten assessment years is given to Hotes ocated in a hiy or rura area or pace of pigrimage. This faciity to the extent of 30 per cent is extended to other paces except four metros. The capita gain tax rate for NRIs arising on transfer of securities has been reduced from 20 per cent to 10 per cent to achieve neutraity with capita gains rate appicabe to FIIs. Administrative measures to improve reporting and widen the tax base incude: (i) a revamped presumptive taxation scheme (requiring individuas owning/easing a motor vehice, a teephone, a house, or having traveed abroad to fie the tax return); (ii) estimated Income Scheme for retai traders wherein profits and gains are to be fixed at 5 per cent of the gross receipt; and (iii) a new Vountary Discosure of Income Scheme or tax amnesty to report undecared assets hed abroad or in India to bring back money into the tax net. Detais of scheme given in box 2.4.

2 18 countries. The main direct tax measures introduced in the budget are given in the box The tax measures have resuted in substantia growth in the tax revenue and induced structura shift in the composition of tax revenue (Tabe 2.8). They have enhanced buoyancy and easticity of taxes. 24. The share of direct taxes in the gross tax revenue has increased from 24.3 per cent in to 30.2 per cent in and further to 35.9 per cent in (RE). The share of indirect taxes decined from 73.7 per cent in to 69.6 per cent in and to 63.9 per cent in (RE). Furthermore, the share of excise revenues in gross revenues has decined from 41.3 per cent in to 35 per cent in and further to go down to 33.4 per cent in (RE). 25. The direct tax revenue as a percent of GDP has increased from 2.6 per cent in to 3 per cent in and further to 3.6 per cent in (RE). The share of indirect taxes as a per cent of GDP decined from 7.8 per cent in to 7.0 per cent in and further to 6.4 per cent in (RE). Overa the tax measures initiated since 1991 have heped improving structura imbaances and anomaies. BOX 2.4 Vountary Discosure of Income Scheme, 1997 (VDIS 97) The provisions of Vountary Discosure of Income Scheme, 1997 introduced by Finance Act, 1997 are contained in Sections 62 to 78 of the Act. The object of the Scheme was to mobiise resources and channeise funds into priority sectors of the economy and to offer an opportunity to persons who have evaded tax in the past to decare their undiscosed income, pay a reasonabe tax and in future adopt the path of rectitude and civi responsibiity. The scheme commenced on and ended on It had the foowing saient features: I. It covered a persons, corporate or non-corporate. The tax payabe on the income decared under the scheme was 35 per cent in the case of corporates and firms and 30 per cent in the case of a other decarants, at par with the norma tax rate appicabe for the current financia year. II. III. According to the scheme, a person coud make a decaration in respect of any income chargeabe to tax for any assessment year upto the assessment year for which he has faied to furnish the return of income or faied to discose income in the returns fied. The scheme provided that a particuars contained in a decaration were to be treated confidentia. Furthermore, the contents of the decaration were not admissibe evidence against the decarant for the purpose of penaty or prosecution under any of the foowing acts: (i) Income-tax Act, 1961 (ii) Weath-tax Act, 1957 (iii) Foreign Exchange Reguation Act, 1973 (iv) Companies Act, 1956 However, the Scheme did not give immunity to offences under the foowing Acts: (i) Chapter IX or Chapter XVII of the Indian Pena Code (45 of 1860) (ii) The Narcotics Drugs and Psychotropic Substances Act, 1985 (61 of 1985) (iii) The Terrorists and Disruptive Activities (Prevention) Act, 1987 (28 of 1987) (iv) The Prevention of Corruption Act, 1988 (49 of 1988) (v) For the purpose of enforcement of any civi iabiity. The scheme was aso not appicabe to any person in respect of whom an order of detention has been made under the Conservation of Foreign Exchange and Prevention of Smugging Activities Act, IV. The scheme was a resounding success with tota number of discosures of over 0.47 miion (compared with current tax assesses of 12 miion), invoving discosure of income of Rs.330 biion (estimated at 2.3 per cent of GDP at current market price for the year ). The scheme netted coections paced at Rs.101 biion (estimated at 0.7 per cent of GDP at current market prices for the year ). The revenue coected under VDIS 1997 accounted for about 7 per cent of the gross tax revenues and 20 per cent of the gross direct taxes of the centre respectivey as per the revised estimates for The scae of success is evident from a comparison with earier schemes given in Tabe 2.7.

3 19 TABLE 2.7 Decarations Under Earier Schemes (Rupees in Crores) Scheme No. of Cases Income/Weath decared Tax Coected VDS VDS VDS 1965 (No.2) Vountary Discousre of (Income) (Income) Income and Weath Act, (Weath) (Weath) 7.70 Source : Report of C&AG (No. 7 of 1990) for the year ended Indirect Taxes 26. The thrust of most of the poicies in indirect tax reates to rationaisation and simpification of tax rates, procedures, rues and reguations so as to eiminate deays in the system and to broaden the tax base. These poicies aso aimed at moving towards moderate tax rates, reduction in dispersa of rates so as to eiminate the scope of administrative abuse and mounting itigation. The major changes introduced in the indirect tax structure Customs Tariff and Excise Duties in budget are given in Box 2.5 and Box 2.6. Coection Rates 27. Tabe 2.9 shows customs duty coection rates for seected import groups during the period to The average coection rate has faen by about 13-percentage points from 44 per cent in to 31 per TABLE 2.8 Sources ces of Tax ax Reven venue ue BE RE Tax Reven venue as Per ercenta centage e of Gross Tax Reven venue axes(a) PIT CIT Indirect Tax axes(b) Customs Excise Tax ax Reven venue ue as Per ercenta centage e of Gross Domestic Product* axes(a) PIT CIT Indirect Tax axes(b) Customs Excise Tota# Note: (a) aso incudes expenditure xpenditure, interest, weath, gift taxes, estate duty & VDIS for ; (b) aso incudes other taxes and duties and service tax; # : incudes taxes referred in (a) & (b) and taxes of Union Territories. Tax reven venue figures for the year and earier year ears are actua and for tax revenue figures are both budget estimates (BE) and revised estimates (RE). * Referes to gross domestic product at current market prices. For the year the ratio has been arrived at by estimating the GDP figure.

4 20 BOX 2.5 Customs tariff measures The peak rate of import duty has been reduced from 50 per cent to 40 per cent ad vaorem except for passenger baggage, acohoic beverages, dried grapes etc. and further reduced to 30 per cent in respect of raw materias. Import of capita goods for genera projects and project reated woud now attract uniform tariff of 20 per cent. The import duty structure of medica equipment has been simpified and rates on specified medica equipment not made in India have been reduced to 20 per cent from 30 per cent and speciaised equipment for cancer treatment are fuy exempted from import duty. The import duty on raw materias and components viz coking coa and ferro aoys used in stee and power sector has been reduced to 10/20 per cent to keep duty on the raw materias and components ower than the finished products. The import duty on non-ferrous metas viz ores and concentrates, nicke, tin and their artices reduced to 5/10/20 per cent. The overa dispersa of customs duty rates on chemicas was reduced, with reduction of peak rate of duty to 30 per cent from 40 per cent. Tariff structure for eectronic industry rationaised to incude the fu exemption to computer software; reduction in duty on computer parts, specified drives, integrated circuits and coour monitors from 20 per cent to 10 per cent. For promoting teecommunication industry duty rate on teecom equipment; parts and sub-assembies; parts of ceuar phones, pager and trunking hand sets reduced to 30/20/20 per cent. To boost tourism industry import duty on specified equipments required for hote industry and on food items used for foreign tourists has been reduced to uniform rate of 25 per cent. In order to tacke environmenta poution, which has a great socia cost, duty on CNG kits and their parts and cataytic convertors used in four-wheeers, has been sashed down to 5 per cent. Import duty on baggage beyond the threshod imit of Rs.6000 has been further reduced from 60 per cent to 50 per cent. Fu exemption has been granted on equipments and chemicas used in petroeum operations and setting up of crude petroeum refinery. Government has increased specia customs duty from 2 per cent to 5 per cent on a imported goods except petroeum products and projects import faing under Chapter Head No cent in The drop in coection rate is evident in a the major product groups except POL. The dispersion of rates, as measured by the range between the maximum and minimum coection rates, though reduced is sti very wide. This eads to distortion of incentives and misaocation of resources. jey, pens of vaue more than Rs.100 per piece, audio and video cassests. Excise Measures 28. In the budget the excise duty rate structure has been significanty rationaised and dispersion of rates reduced. Three new rates of 8 per cent, 13 per cent and 18 per cent have been introduced to graduay move towards fewer rates. The scope of service tax has been widened to incude ten more services under the tax net. Nomina excise duty of 8 per cent has been introduced on some of the goods such as jams,

5 21 TABLE 2.9 Coection Rates for Seected Import Groups (in per cent) S. COMMODITY No. GROUP 1. Food products POL Chemicas Man-made fibres Paper & newsprint Natura fibres Metas Capita goods Others Non POL Tota S.No. 1 S.No. 3 S.No. 5 S.No 6 S.No. 7 S.No. 8 incudes cereas, puses, mik and cream, fruits, vegetabe and anima fats. incudes chemica eements, compounds, pharmaceuticas, dyeing and coouring materias, pastics and rubber. incudes pup and waste paper, newsprint, paperboards and manufactures and printed books, newspaper, journas, etc. incudes raw woo and sik. incudes iron and stee and non-ferrous metas. incudes non-eectrica machinery and project imports, eectrica machinery and transport equipment. BOX 2.6 Excise Tax Measures Large number of items of mass consumption ike sugar, confectionery, aundry soap, tooth pastes and powder, kitchen wares of gass, ayurvedic and homeopathic medicines, sanitary artices, fruit juice based non acohoic beverages and insecticides, pesticides, fungicides, washing soaps wi attract a uniform reduced rate of excise duty of 8 per cent. Excise duties in respect of eectronic items ike fouroscent tubes, computers and parts, batteries and x-ray fims have been reduced to uniform rates of 13 per cent. Chemicas, detergents, toiet soaps, perfumed hair oi, dyes, paints and varnishes woud now attract reduced duty rate of 18 per cent. Cars used by physicay handicapped and mutipurpose utiity vehices woud now attract duty rate of 25 per cent. In order to revive and give thrust to the aiing jute industry, a jute and products made from jute have been totay exempted from excise duty. The excise duty on cigarettes and biris has been increased. The service tax net is widened to incude inter-aia transporters of goods by roads, car rentas, air trave agents etc. The sma-scae sector industry scheme is radicay modified to benefit sma-scae sector. The benefits incude : (a) fu exemption from duty on cearance upto Rs.30 akhs, (b) nomina fat rate of duty of 3% on cearances between Rs.30 to 50 akhs and (c) fat rate of duty of 5 per cent fixed for cearances between Rs akhs. Modvat Scheme was rationaised to reduce misuse of it as foows :(a) Modvat credit wi not be permissibe on inputs which were ceared by manufacturer with intention to evade duty, (b) Modvat credit of additiona duty of customs on goods imported as project imports wi be permissibe to the extent of 75 per cent of such duty.