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No rolling back of new tax provisions: Chidambaram

No rolling back of new tax provisions: Chidambaram
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First Published: Tue, Mar 06 2007. 12 06 AM IST
Updated: Tue, Mar 06 2007. 12 06 AM IST
Five days after presenting the Budget, P. Chidambaram has ruled out a review of any of the tax provisions introduced, but said he was willing to consider extending tax incentives available for research and development in specific sectors such as pharmaceuticals to other sectors.
The Union finance minister was speaking at an interactive session organized by the Federation of Indian Chambers of Commerce and Industry (Ficci), an industry body.
The minister, while defending various Budget provisions related to tax, said industry needed to do its bit to fight inflation. “The opportunity to make a profit in the short term should not hold a cloud over the thinking that price stability is fundamental to a strong economy,” he said.
He added that cement companies, which had announced an increase in prices after the Budget, should meet the government to work out an alternative. Chidambaram said the differential excise duty regime on cement was “not a new idea ...We have such a structure even in footwear,” he said.
Coincidentally, while the finance minister was addressing the Ficci meet, steel companies, which had earlier hiked their prices on 1 March, reduced them after a meeting the steel ministry secretary. Cement manufacturers also met with A.K. Dua, industry secretary. Officials at the ministry said that they expressed their inability to lower prices.
Chidambaram ruled out any reduction in corporate tax rates unless tax exemptions were removed, and said that the effective tax rate in India was already very low. “The effective tax rate in India (for companies) is 19%,” he said. “Show me one Asian country which has an effective tax rate of less than 19%,” he added.
Most people expected Budget 2007 to reduce individual and corporate taxes by removing surcharges.
Striking the conciliatory tone he used for most of the discussion, Chidambaram said that the government was willing to “sit with industry and arrive at how ESOPs (employee stock options) should be taxed”. “ESOPs can be taxed either as a fringe benefit in the hands of the company or a perquisite at the hands of the employee,” he said.
Budget 2007 increases the dividend distribution tax to 15% from 12.5%, and industry has not taken this well, with some companies pointing out that this could lead to a cascading of taxes for companies and business groups that adopt a multi-layered corporate structure. This would mean that a holding company of a group, which derives its income from the dividend paid by various subsidiaries, would pay a dividend distribution tax when it declares a dividend.
Chidambaram said the cascading was inevitable as “long as the corporate sector followed a layered structure”.
“We are trying to identify causes, which will increase production and productivity. That is why the Budget pays attention to credit, water,seeds, fertilizer and power. We much remain on track to give stimulus to agriculture just as we much remain on track to give stimulus to industry,” said the minister, explaining just why this Budget couldn’t help but focus on agriculture.
monica.g@livemint.com
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First Published: Tue, Mar 06 2007. 12 06 AM IST