M A I N   N E W S

No change in personal IT rates, exemption limit
Over 28 per cent more for defence
Cenvat replaces Modvat
Tribune News Service

NEW DELHI, Feb 29 — The Union Finance Minister, Mr Yashwant Sinha, today confined his proposed “harsh” decisions in the Union Budget for 2000-2001 to the urban elite and attempted a further rationalisation of excise and customs rates to mobilise an additional Rs 5080 crore.

Basing his proposals for direct taxes on the principle of “stability, economic growth, rationalisation and simplification, Mr Sinha left the existing tax rates of 10 per cent, 20 per cent and 30 per cent untouched but proposed that the surcharge on non-corporate taxpayers having total taxable income above Rs 1,50,000 be increased to 15 per cent from the present 10 per cent. Added to the 30 per cent tax at this level, the total levy works out to 34.5 per cent.

Mr Sinha has given sops to senior citizens and women by enhancing the tax rebate level to Rs 15,000. The exemption from tax for the pension and family pension of gallantry award winners of defence forces is now being extended to paramilitary and other forces.

He also proposed during his nearly two-hour Budget speech in the Lok Sabha this afternoon that taxpayers would no more be entitled to buy sugar from ration shops.

On the indirect taxes side, the proposed rationalisation of excise duty rates and customs rates would result in cigarettes, cosmetics and multi-utility vehicles becoming dearer while computer hardware, cellular phones, medical equipment, electric bulbs and toothpowder would become cheaper.

Basic customs duty has been slashed on a host of information technology and telecom products, including computers, mother boards, CD-ROMs, semiconductor inputs, cellular phones and inputs on optical fibre to give the much needed fillip to knowledge-based and communication industries.

Tobacco consumers will have to pay more with the Finance Minister slapping an across-the-board 5 per cent additional excise on all kinds of cigarettes.

The Finance Minister announced an increase of Rs 11,100 crore budget support to the plan, raising it to the level of Rs 88,100 crore compared to Rs 77,000 crore last year despite several fiscal strain, to preserve the intrinsic dynamism of the economy. The Central sector plan outlay has been increased from Rs 103,521 crore to Rs 117,334 crore, showing an increase of Rs 13813 crore.

Similarly, Central assistance for state plans has been increased from Rs 33,000 crore to Rs 36,824 crore, an increase of Rs 3824 crore. The allocation for Defence has been raised to Rs 55,587 crore, an increase of Rs 13,000 crore, which represents the largest increase in the Defence Budget in any single year.

Mr Sinha said that more would be provided whenever required, adding, “we shall not shrink from making any sacrifice to guard and protect every inch of our beloved motherland”.

The Minister also announced that the fiscal deficit was likely to increase to 5.6 per cent of the GDP from the budgetary target of 4 per cent for 1999-2000.

Under the excise duty rationalisation, the three ad-valorem rates of basic excise duty — 8 per cent, 16 per cent and 24 per cent — introduced in last year’s Budget, have been converged into a single rate of 16 per cent Central value added tax (Cenvat), which is the new name for the Modvat scheme. As a result, the 8 per cent excise rate is being abolished and most of the items at this rate are being moved to 16 per cent.

However, in case of certain items, three rates of special excise of 8 per cent, 16 per cent and 24 per cent would be levied.

Excise duty has been abolished on some items of medicare and others like medicinal grade oxygen and hydrogen peroxide, anaesthetics, potassium iodate, medical and surgical gloves and items of common use like cutlery and knives, household glassware, electric bulbs, clocks and watches, toothpowder, sanitary towels, baby napkins, chicory and soaps for supply through ration shops. Specified cold chain equipment have been totally exempted in larger public interest.

The rate structure in case of kerosene, cooking gas, laundry soap, cotton yarn and diesel engines up to 10 HP have been so designed to prevent any increase in the price. Raw materials or intermediates such as plastic materials, films, tread rubber, cellular rubber, nylon filament yarn textile materials of transmission belts, sacks and bags made of synthetic textiles etc. are to attract lesser excise duty. Excise duty on sterile contact lens solutions, shikakai powder and cars for the physically handicapped is also to be reduced.

In his new strategy, the Finance Minister has brought the items that are now charged to a total duty of 30 per cent to a total duty of 32 per cent comprising 16 per cent Cenvat and 16 per cent special excise duty. However, soft drink concentrates supplied to bottlers will be charged 16 per cent Cenvat being modvatable. The Modvat scheme is being extended to include cigarette for the first time to provide a cheer to the industry.

In the sector specific proposals, it has been decided to restore ad valorem excise duty structure on steel produced by re-rollers and in induction furnaces. These would be subject to Cenvat of 16 per cent. In case of textiles, it is proposed to raise the rates of compounded levy from the existing Rs 1.5 lakh to Rs 2 lakh per chamber per month. The units engaged in texturising of duty paid polyster yarn will henceforth pay specific rate of excise duty to reduce valuation disputes. It is also decided to include cosmetics and toilet preparations, air-conditioning and refrigerating machinery and their parts, tread rubber and articles of plastic in the general scheme of exemptions for small-scale units.

In case of customs duty, it is proposed to reduce the peak rate from 40 per cent to 35 per cent, bringing down the number of customs duty rates from five to four. Hereafter, all importers will have to pay the special additional duty of customs but this will not apply to petroleum products. Since more items are now placed in the free list of imports in keeping with the country’s international obligations, to accord adequate tariff protection these are being placed at the peak rate.

To give a thrust to entertainment industry, it has been proposed to bring down duty on cinematographic cameras and related equipment and colour positive and negative films. In a bid to raise jewellery exports, the basic customs duty on platinum and non-industrial diamonds has been brought down substantially. As far as the petroleum sector is concerned, it has been decided to reduce the basic customs duty on crude oil and petroleum products except kerosene.

The proposals on the excise duty are estimated to result in the revenue gain of Rs 3,252 crore in a year while on the customs side, the revenue loss will be Rs 1,428 crore.

In a bid to give a boost to knowledge-based industries, floating of venture capital funds has been made easy. Tax benefits available for the infrastructure sector are now being extended to urban infrastructure like water treatment and waste management.

The income tax rebate level on repayment of housing loans has been enhanced to Rs 20,000 per annum. Tax payers now, even if they own one house and still make an investment in a new housing can claim exemption from capital gains tax. The maximum amount of repayment of loan to higher education has been raised to Rs 40,000 for allowable deduction.

Keeping in view the transportation requirements for international trade it has been decided to allow ship owners to claim deduction of their entire profits if these are used for purchase of new ships. A deduction of 100 per cent will also be allowed in case of donations made by corporates for the development of sports infrastructure. The minimum alternate tax is now proposed to be modified and levied at the revised rate of 7.5 per cent of the book profits instead of 10.5 per cent to provide better efficacy to provisions currently available and bring all zero-tax companies within the tax net. The tax holiday for new units set up in industrially backward areas has been extended for another two years along with the tax benefits.

To strengthen capital markets, it is also proposed to provide 100 per cent exemption to the income of investors, protection funds of stock exchanges. The rate of tax on dividends distributed by the domestic companies has been enhanced to 20 per cent while the dividend income in the hands of shareholders will continue to be tax free. The rate of tax on income distributed by debt-oriented mutual funds and TS-64 and other open ended equity oriented schemes of UTI and mutual funds will continue to remain exempt. The interest tax of 2 per cent on bank and financial institutions has been abolished to benefit the financial sector.

The one-by-six tax identifier scheme is now proposed to be extended to 79 more cities, taking the total to 133. Suitable changes will be made in law to ensure that income from farmhouse other than genuine agricultural operations has been brought under the tax net. It has been decided to phase out in five years tax concessions available to export earnings of various kinds from the next financial year.

The proposals made in the Budget concerning direct taxes are estimated to bring in a revenue of Rs 72,105 crore, including additional mobilisation of Rs 5,080 crore. The total central tax revenue receipts will be Rs 146,209 crore with a deficit of Rs 1,11,275 crore.

Presenting the first Budget of this millennium and the new government, Mr Sinha said this would put India on a sustained, equitable and job creating growth path of seven to 8 per cent per year in order to banish the scourge of poverty from the country within a decade.

In order to curb growth of non-plan expenditure, the Finance Minister announced initiatives including the vigorous zero-based budgeting scrutiny to all ongoing schemes as a result of which 69 schemes are to be discontinued or merged and this process to be completed in a time bound manner. The manpower requirements of government departments will be reassessed by reviewing the norms for creation of posts, fresh recruitment limited to minimum, the scheme for redeployment of surplus staff made more effective and voluntary retirement scheme (VRS) introduced for the surplus staff. All subsidies to be reviewed, no new autonomous institutions to be created without Cabinet approval and budgetary support to them kept minimum and Rs. 1,000 crore out of the disinvestment proceeds earmarked for debt service payment.

The Finance Minister also announced lowering of the interest rate on general provident fund by 1 per cent to 11 per cent with effect from April 1.

Referring to the financial position of State governments which had deteriorated sharply during the past few years, the Finance Minister called for collective measures for fiscal reforms at the state level.

On agriculture and rural development the Finance Minister announced the strengthening of earlier programmes for free credit flow and launching of further initiatives. The credit flow to agriculture was estimated at about Rs. 41,800 crore this year which was expected to be increased by over 20 per cent to a level of Rs, 51,500 crores in 2000-2001.

The Finance Minister also announced setting up of a micro finance development fund with a contribution of Rs 100 crore in NABARD. A similar fund is to be established for rural cooperative credit system. The Kisan credit cards coverage was sought to be increased by additional 75 lakh cards by March as against 50 lakh cards issued to the farmers during the current year.

Mr Sinha announced the setting up of a national commission on land use policy, comprising experts in the relevant fields for adopting an integrated approach to a number of subjects like preservation and development of forest wealth, optimum utilisation of the wasteland development, safeguarding of bio-diversity etc.

On the literacy front, he said the national literacy Mission would be revamped to raise the literacy rate to 75 per cent by 2005. Allocation for elementary education has been increased from Rs. 2,931 crore to Rs, 3,729 crore. For extending drinking water facilities in all rural habitations in the next five years, the Finance Minister proposed to cover around 60,000 habitations and 30,000 schools in next year by raising the outlay of the Drinking Water Department from Rs. 1,807 crore this year to Rs. 2,100 crore next year. The allocations for Reproductive and Child Health Programme had also been increased from Rs. 695 crore to Rs. 1051 crore and a provision Rs 1,710 crore had been made for rural housing schemes.

The Finance Minister announced the launching a new scheme-the “Pradhan Mantri Gramodaya Yojana” — with the objective of undertaking time-bound programmes to fulfil the critical needs of rural people. He provided a sum of Rs 5,000 crore for this scheme in the Budget, out of which Rs 2,500 crore is earmarked for launching a nationwide programme of constructing rural roads. The erstwhile Basic Minimum Service Scheme will be merged with the new scheme raising, thereby the total provision available to more than Rs 1,300 crore.

Mr Sinha announced the construction of 25 lakh dwelling units in rural areas in the next year under the “Housing for All” scheme.

The Finance Minister announced a new group insurance scheme “Janashree Bima Yojana” for the poor under which beneficiaries would have insurance cover of Rs 20,000 in case of natural death, Rs 50,000 for accidental death or total permanent disability and Rs 25,000 for partial permanent disability. Premia will be fixed on an actuarial basis. The monthly premium will be Rs 10 or less through support from LIC’s Social Security Fund supplemented by the Government.

The Finance Minister said that a task force will be set up under an eminent person to review all existing legislation and Government schemes pertaining to the role of women in national economy.

With the objective of operationalising the recently announced National Population Policy to bring down total fertility rates to replacement levels by 2001, the Plan allocation for the Department of Family Welfare has been increased from Rs 2,920 crore in 1999-2000 to Rs 3,520 crore next year.

On as Small-Scale industry, he proposed raising the limit for credit without collateral security from Rs 1 lakh to Rs 5 lakhs, and the composite loan limit to small borrowers from Rs 5 lakh to Rs 10 lakh.

A new central scheme has been formulated and a provision of Rs 100 crore made in the Budget for credit guarantee to SSI. The Finance Minister said that the Government have decided to accept the recommendations of the Narasimham Committee on banking sector reforms but made it clear that no public sector bank will be closed.

Referring to the significant role played by NBFCs in promoting growth of industry and services, Mr Sinha proposed to bring a new Bill, which will strengthen the hands of depositors in situations of malafide for fraudulent actions of NBFCs. The Finance Minister said that there are a number of PSUs which are sick and not capable of being revived. The only option is to close down these undertakings after providing an acceptable safety net for the employees and workers. Admitting that resources under the National Renewal Fund have not been sufficient to meet the cost of Voluntary Separation Scheme (VSS) for such PSUs, Mr Sinha said that some of these PSUs had assets, which if unbundled and realised, could be used for funding VSS. On the Revised Estimates for 1999-2000, Mr Sinha said that the increase in the budgeted expenditure has been 7 per cent and the shortfall in budgeted tax collection was estimated to be 4 per cent. The non-plan expenditure had increased by Rs 17,461 crore (8.4 per cent over Budget estimate of Rs 2,06,882 crore) and the plan expenditure by Rs 2,395 crore (3.1 per cent over budget estimate of Rs 77,000 crore). He said the major increases in non-plan expenditure are on account of pension payments, interest payments, extended wage and means advances to States, defence interest subsidy, food subsidy, postal deficit and assistance to States from the National Calamity Relief Fund. Net tax revenues for the Centre are estimated at Rs 1,26,469 crore against the budgeted Rs 1,32, 365 crore, reflecting a shortfall of about Rs 5,900 crore. He said the shortfall was mainly due to lower customs revenue because of low growth in the dollar value of non-oil imports and lower excise revenue resulting from low inflation in manufactured products for most of the year. He said that disinvestments receipts are expected to be Rs 2,600 crore against Rs 10,000 crore budgeted.

On the Budget Estimates for 2000-2001 he said the total expenditure is estimated at Rs 3,38,487 crore, of which Rs 88,100 crore was for plan and Rs 2,50,387 crore for non-plan.

The budget support for Central, State and UT Plans has been placed at Rs 88,100 crore, marking an increase of Rs 8,705 crore over RE 1999-2000. Gross budgetary support for the Central plan is being enhanced from Rs 43,661 crore in RE 1999-2000 to Rs 51,276 Crore. Total Central plan outlay at Rs 1,17,334 crore will be more by Rs 21,024 crore from last year’s level of Rs 96,310 crore, a hefty 22 per cent increase.

What Budget proposes

NEW DELHI, Feb 29 (PTI) — The government proposes to introduce a single rate central value added tax of 16 per cent by merging three ad valorem rates.

• In addition to 16 per cent single rate, the government proposes to have three special rates of excise.
• Items of medicare and surgical products to be exempted from central VAT.
• 5 per cent increase in excise duty on all categories of cigarettes.
• From April, the plethora of existing rules to be replaced by a small set of transparent rules.
• Proposal to rationalise MODVAT scheme. The only exception will be diesel and petrol.
• Ad valorem duty structure to be restored on certain steel items.
• All statutory records on excise will be dispensed with effect from July 1.
• System of excise duty-based MRP to be extended to 24 more items. More items to be added during the year.
• Peak rate of customs duty reduced from 40 to 35 per cent.
• Surcharge of 10 per cent to continue. This will be applicable on peak custom duty.
• Special additional duty (SAD) on customs introduced in 1998-99 on manufacturer importers to be extended to traders (petroleum products exempted).
• Customs duty reduced for several items of Information Technology sector from 20 to 15 per cent.
• Excise duty on cellular phones to be reduced from 25 per cent to 5 per cent.
• Battery backs for cellular phones to be down from 40 to 15 per cent.
• Basic customs duty on platinum and non-industrial diamond reduced from 40 per cent to 15 per cent.
• Excise duty changes to net an additional revenue of Rs 3,250 crore.
• Customs duty changes to net a loss of Rs 1,424 crore.
• Basic customs duty on crude oil reduced from 20 per cent to 15 per cent and on petroleum products from 30 to 25 per cent.
• No change in service taxes. Expert group to be set up in this regard.
• Import duty on cinematographic cameras and other related equipment down from 40 to 25 per cent.
• No change in income tax rates and exemption limits. Ten per cent surcharge remains unchanged.
• Additional rebate of Rs 5,000 for women tax payers. It will be up to Rs 15,000 for women senior citizens.
• Investments in companies involved in long term finance of urban infrastructure to be considered on a par with investments in charitable trusts.
• No approval required for venture capital funds from tax authorities. One-time tax payment of 20 per cent when the capital is distributed to investors.
• Import duty on computer mother boards to be down from 50 per cent to 20 per cent.
• Duty on semiconductor components to be reduced from 15 per cent to 5 per cent.
• Duty on microprocessor to be slashed from 5 per cent to nil.
• Duty on integrated circuits to be cut from 5 per cent to nil.
• Capital gains tax to be allowed for more than one house.
• Hundred per cent exemption on setting up of vocational institutions by private sector in rural areas.
• Hundred per cent deduction on donations given by corporate entities to Indian Olympic Association to promote sports.
• Minimum alternate tax (MAT) for companies reduced to 7.5 per cent from 10.5 per cent, to bring in all zero tax companies into the net.
• Tax holiday for starting industries in industrially backward states and districts to be extended by two more years.
• “One-by-six” scheme for compulsory filing of income tax returns to be extended to additional 79 cities. Currently, it is applicable in 54 cities.
• Two per cent interest tax on banks and companies to be abolished.
• Committee to suggest changes in special tax on public sector LIC.
• Tax on dividend income distributed by companies increased from 10 per cent to 20 per cent. No tax on individual dividend income.
• Income from farm houses will be brought under tax net.
• Tax on interest income distributed by mutual funds, including UTI, to be raised from 10 per cent to 20 per cent.
• Exemption to US-64 and open ended mutual funds to continue.
• Common business identification number to be introduced for easy identification of corporates.
• Special counters to issue PAN numbers in 30 days.
• Tax exemptions on export earnings to be phased out in five years.
• Tax exemptions to be reduced by 20 per cent every year in a phased manner in five years starting from 2000.
• Direct tax revenues for the coming year estimated at Rs 72,105 crore, including an additional revenue of Rs 5,080 crore.
• Total gross receipts of the centre estimated at Rs 1,36,000 crore during 2000-01.
• Fiscal deficit is estimated at Rs 1,11,275 crore which will be 5. 1 per cent of the GDP.