New Delhi: Finance Minister P Chidambaram on debunked criticism that corporate India would have to bear the extra burden of taxes and said a minimum of Rs 980 benefit would be available at the lowest income tax bracket even after the one per cent increase in education cess.
“There will be no additional burden on corporate,” he said at his post-budget briefing and added the entire focus of the budget is to benefit the common man for attaining the goal of “inclusive growth”.
He said the endeavour is to contain inflation, which is proving a thorn in the flesh for government, to 4-5%.
“Nothing is being done to hurt the growth story which remains intact,” he said, adding economic growth during the next fiscal was likely to be 9% over an expected growth of 9.2% during 2006-07.
On bringing ESOPs (employees stock options) under fringe benefit tax (FBT), Chidambaram said ESOPs were also fringe benefits that were given mostly to top officials and tax would have to be paid on such perquisites.
Explaining the impact of increase in education cess on personal income tax, he said tax payers in the lowest income tax bracket would get a minimum relief of Rs 980, even after accounting for the additional levy.
On Minimum Alternate Tax (MAT), he said MAT proposals would not impose any additional burden on the corporate as they can take credit for the tax.
Referring to dividend distribution tax (DDT), he said the tax is paid by companies and 2.5% increase in the DDT will not put any significant burden on tax payers, as most of investors receiving dividend income are in higher tax bracket.
The phasing out of the unpopular Central Sales Tax, which creates distortions in smooth implementation of state-level VAT, will begin in the next fiscal when it will be cut from 4% to 3%.
CST and VAT are contradictory in nature since the former imposes a tax on the inter-state sale of goods, while the latter creates a uniform tax structure across states.
Finance Minister P Chidambaram allocated Rs 5,495 crore in the 2007-08 budget for compensating states for revenue losses due to VAT and the cut in CST from April 1.
The Centre did not specify any specific budgetary support figure for states to meet their losses due to the cut in CST and clubbed it with the VAT compensation.
According to an earlier agreement with the VAT panel, part of the loss due to the cut in CST, pegged at over Rs 6,000 crore next fiscal, will be met by transferring to states the entire collections from tax on 33 services. The states currently get 30.5% from these services.
The Centre also proposed to provide states the power to levy a tax on 44 local services, but there is no final agreement on this.
The Centre also proposed to move to Goods and Services Tax (GST) to create a common market from April one, 2010. Chidambaram said in the budget that states have agreed to work with the Centre to prepare a roadmap for introducing the national-level GST.
Revenues from VAT continued to be buoyant and rose 24.3% in the first nine months of this fiscal, he said.
A majority of states shifted to VAT from April one, 2005, but a few of them refrained from introducing the new tax on the ground that CST and VAT could not co-exist.