Finance Minister’s Reply to the debate on the Finance Bill 2007-08 in the Lok Sabha on May 3, 2007
The Finance Bill, 2007 is before this House. On Monday and today, a number of Honourable Members participated in the debate, and I express my gratitude to each one of them individually.
2. As Honourable Members know, the Budget discussion ended on a disappointing note in the sense that Government did not get an opportunity to reply to the debate. Nevertheless, I tabled the text of my reply before this House. Some parts of that text were reported in the media.
3. The discussion on the Finance Bill, quite naturally, also embraced larger issues of economic policy; the National Common Minimum Programme; growth; equity; inflation and so on. While I shall address some of these issues, I would like to say that the present debate is on the Finance Bill. The Finance Bill is, essentially, a Bill that concerns the tax laws of the country such as the Income Tax Act, the Excise Act and the Customs Act. Therefore, in the first part of my reply, I shall address issues arising out of the provisions of the Finance Bill – issues raised on the floor of this House as well as issues represented to me by Honourable Members of Parliament and others.
4. At the end of my reply, Honourable Members will find that I have responded, to the extent possible, to the many suggestions and representations that Government has received during the last two months. The UPA Government is a responsive Government. While we have well considered and strong views on matters relating to taxation, we are also responsive to criticism and suggestions. Hence, towards the end of my reply, I shall announce some changes in the proposals originally made in the Finance Bill and announce some reliefs.
5. Let me begin with Government’s policy on taxation. The NCMP says:
“Government will initiate measures to increase the tax:GDP ratio by undertaking major tax reforms that expand the base of tax payers, increased tax compliance and make the tax administration more efficient. Tax rates will be stable and conducive to growth, compliance and investment.”
I ask Honourable Members to judge us against this standard. In 1997-98, just before the NDA Government took over, the tax:GDP ratio was 9.1 per cent or, excluding the VDIS revenue, 8.5 per cent. After the NDA Government took over, in 1998-99, it declined to 8.3 per cent. In 2003-04, the last year of the NDA Government, the tax:GDP ratio stood at 9.2 per cent. Thus, in a period of six years, the tax:GDP ratio increased from 8.5 per cent to 9.2 per cent.
6. In the three years of the UPA Government we have increased the tax:GDP ratio from 9.2 per cent to 11.5 per cent. Of this, the ratio of direct taxes to GDP is 5.6 per cent. For 2007-08, I have projected a tax:GDP ratio of 11.8 per cent. I am happy to report that in 2006-07, for the first time in recent years, actual tax collections exceeded both Budget Estimates and Revised Estimates. Gross tax revenue at Rs.471,742 exceeded Budget Estimates by Rs.29,589 crore and the Revised Estimates by Rs.3,894 crore.
7. We have been able to do this by expanding the base of tax payers, more efficient tax administration and motivating tax payers to comply with tax laws. Besides, we have kept tax rates stable and moderate. The proof of the success of this policy is the increase in the savings rate and the investment rate. As Honourable Members are aware, the savings rate has increased from 29.7 per cent in 2003-04 to 32.4 per cent in 2005-06 and the investment rate has increased from 28.0 per cent in 2003-04 to 33.8 per cent in 2005-06. The increase in the investment rate is the main reason behind the acceleration of growth in the manufacturing and the services sectors, leading to an acceleration in the overall growth of the economy. I assure Honourable Members that Government will faithfully adhere to the NCMP: it will keep tax rates stable and moderate and create an environment that will be conducive to greater investment and growth.
8. I am happy that Honourable Members are concerned about tax exemptions. This is a legacy issue. In order to bring the issue to the centre stage, beginning with the Budget for 2006-07, I placed before this House a statement called ’Statement of Revenue Foregone’. This is a universal practice. It captures the loss of revenue due to various exemptions. However, I notice that, even while Honourable Members pleaded for removal of exemptions, they also urged me to grant exemptions – or increase the concessions – to certain sections of tax payers. In fact, every criticism of the Finance Bill – made inside the House or outside and especially by analysts – is centred around one exemption or another. If we remove the ’overburden’ of the arguments, the underlying issue is: why have you removed an exemption or why have you curtailed an exemption or why have you not enhanced an exemption?
9. I have a duty to raise resources. Given the commitment of the UPA Government to inclusive growth and given the need to finance social sector expenditure, the need for resources is growing every year. For example, plan expenditure has increased from Rs.122,280 crore in 2003-04 to Rs.205,100 crore in the BE for 2007-08. Within plan expenditure, many key sectors have witnessed a sharp increase in budgetary support as we enter the fourth year of the UPA Government.
Let me give you a few examples:
|Rural Devt & Land resources||11,320||29,000|
|Road transport and highways||7,236||14,066|
(in Rs cr)
10. On the non-plan side too, the demand for resources has increased to keep pace with the need for expenditure. For example, the allocation for defence has increased from Rs.65,300 crore in 2003-04 to Rs. 96,000 crore in the BE for 2007-08.
11. Above all, grants to State and UT Governments have increased tremendously. In 2003-04, the Central Government allocated Rs.18,369 crore under this head and we will provide Rs.38,403 crore in 2007-08.
12. Honourable Members may kindly note that out of every rupee of tax revenue collected by the Central Government, approximately 30 per cent goes to the States and Union Territories. Just to give an idea of the size of the transfer envelope, in 2003-04, net resources transferred to States and UTs was Rs.126,623 crore and in 2007-08, it will be Rs.248,844 crore. In addition to these resources, the Central Government also makes direct releases under Central Plan, State and UT Plans and to State/District level autonomous bodies and implementing agencies.
13. Shri Mahtab asked me about education cess and how it is shared with the States. While education cess is not directly shared with the States, the amount collected goes into a non-lapsable account to support Sarva Shiksha Abhiyan and the Mid-day Meal Scheme. As Members are aware, the SSA and Mid-day Meal Scheme which are implemented in the States are largely funded by the Central Government. Thus, the States receive more than the 30 per cent share that they would have received if the education cess had been collected as a normal tax. As far as the collections under cess and surcharge are concerned, the figures are: in 2006-07, according to Revised Estimates, the collection will be Rs.8,973 crore and in 2007-08, according to Budget Estimates, it will be Rs.15,592 crore.
14. Shri Mahtab also wanted to know how the proposed export duty on iron ores will be shared with the States. They will be shared according to the normal formula applicable to customs duties.
15. Let me now turn to the tax proposals and respond to the various suggestions.
16. The first issue is about tax brackets under personal income tax. In 1997-98, the threshold exemption was Rs. 40,000. When the NDA Government laid down office and the UPA Government took over, the threshold exemption for an individual was Rs.50,000. Thus, in a period of six years, the threshold exemption limit was increased by Rs.10,000. In addition, there was a standard deduction of Rs.30,000 for salaried tax payers alone. In 2005-06, we made a major overhaul of direct taxes. As against an effective threshold of Rs.80,000 for salaried tax payers, we increased the threshold to Rs.100,000. Besides, we continued with exemption of up to Rs.9,600 per year for transport allowance and up to Rs.15,000 per year for medical reimbursement. Furthermore, the tax brackets were recast radically. As against a 10 per cent rate for income over Rs.50,000, the 10 per cent rate now applies for income over Rs.100,000 and as against a 20 per cent rate for income over Rs.60,000, the 20 per cent rate now applies for over Rs.150,000. I can say with confidence that, taking into account the revised tax brackets and the rates, every individual tax payer has benefited under the UPA Government.
17. Further, Honourable Members may also recall the radical change made in the tax treatment of savings. As against the earlier method of giving tax rebate – which often resulted in the full benefit not accruing to the tax payer – we have introduced Section 80C. Now, the treatment is not by giving a tax rebate, but by giving a deduction from income, so that the full benefit accrues to the tax payer. Thus, every tax payer, in addition to the benefit of the revised tax bracket and rate, could also enjoy a full deduction from income up to Rs.100,000 under Section 80C.
18. We continued with this regime in 2006- 07. In 2007-08, I have proposed to raise the first tax bracket from Rs.100,000 to Rs.110,000, that is an increase of 10 per cent. In fact, this reflects, indirectly, the correction for inflation in two years, which amounts to about 9.72 per cent. I believe, I have met the point raised by Shri Sandip Dikshit.
19. When we raised the first tax bracket for the individual, we also raised, by the same amount of Rs.10,000 for the woman assessee and for the senior citizen. The woman assessee gets a relief of Rs.1,000 per year and a senior citizen gets a relief of Rs.2,000 per year.
20. Honourable Members may also note that we have raised the exemption limit for health insurance premium from Rs.10,000 to Rs.15,000 for individuals and in the case of senior citizens to Rs.20,000. A senior citizen will get a minimum relief of Rs.2,000 per year. Similarly we have extended the tax exemption on interest on education loan in the case of loans taken for any relative of the assessee.
21. All these concessions must be taken together. When taken together, it would be clear that every tax payer has been given considerable relief in the three Budgets for 2005-06, 2006-07 and 2007-08. Cumulatively, these reliefs are far in excess of the pitiful reliefs given during the six year period 1998-2004.
22. Shri Roopchand Pal wanted to know how many individual assesses admit to an income of more than Rs.10 lakhs per year. In 2003-04, the number was approximately 97,500. In 2005-06, the number is estimated to have increased to approximately 140,000, and I believe the number ought to have increased further in 2006-07. Nevertheless, I believe that the number is still too small. The efforts that the Government is taking to improve tax compliance should motivate more people to declare their true income.
23. Shri Vijay Krishna wanted me to impose a tax on dividends. I may point out that there is a tax on dividends, except that it is called Dividend Distribution Tax (DDT) and collected at the point where dividends are distributed. This is a neat and efficient way of collecting the tax. I have also raised the rate of DDT from 12.5 per cent to 15 per cent this year.
24. Shri Vijayendra Pal Singh asked me why a limit of Rs.50 lakhs per investor has been imposed in respect of capital gains bonds issued under Section 54 EC of the Income Tax Act. The total size of the bonds is limited by the need to borrow of NHAI and REC. In 2006-07, the total size was Rs.9,500 crore. When there was no limit per investor, the bonds were virtually monopolised by big investors who had huge capital gains. As a result, many small investors who came in the later months of the year could not access these bonds. Hence, we decided to put a limit of Rs.50 lakhs per investor. Small investors will benefit from this limit, while big investors will benefit up to Rs.50 lakhs. I believe that the change made brings more equity. Shri Suresh Prabhu made some comments. Let me assure him, no other restriction has been added in the provisions relating to capital gains.
25. Shri V.P. Singh also wanted me to extend the tax holiday for new hotels to all parts of the country. This, in fact, is a plea for enlarging a tax exemption. The hotel industry is a highly profitable industry and can afford to pay the taxes. The exemption granted to new hotels in the NCT of Delhi and the adjacent districts is solely because of the Commonwealth Games of 2010. I am, however, inclined to separately look into incentives that could be given to the hotel industry to promote tourism in the Buddhist circuit and other Buddhist destinations.
26. Shri P.S. Gadhavi raised some issues about TDS. TDS is only an advance tax. If there is no tax liability or if there is a reduced tax liability, the tax collected is refunded. Besides, under Section 197, an assessee can apply to the assessing officer for issue of a certificate for deduction at a lower rate or nil rate. Likewise, under Section 197A, no deduction is made if the assessee furnishes a declaration in writing, duly verified, that his income does not attract any tax liability. Forms 15G and 15H have been prescribed for this purpose and many assessees take advantage of these provisions. In their cases, TDS is not applied.
27. There was a discussion on the Statement of Revenue Foregone. As I said a little while ago, this is a legacy issue. Tax exemptions have been given over the years, and there is resistance – some times fierce resistance – to any attempt to prune the tax exemptions. No one wants to give up an exemption that he or she has enjoyed for many years. Every year there are pleas for continuing exemptions beyond the sunset date or enlarging the exemptions. Even during the debate in this House, there were some requests for giving or enlarging exemptions. Nevertheless, I have made an attempt to prune some exemptions and these are referred to in paragraphs 171 to 177 and 179 of the Budget Speech.
28. The bulk of the exemptions indeed goes to the corporate sector. However, it must be remembered that the major tax receipts are under the heads of excise, customs and corporation tax which are also paid by the corporate sector. When we analysed the effective tax rate of 301,736 companies, we found that the effective tax rate was 19.26 per cent as against the scheduled rate including surcharge of 33 per cent. I have not yielded to pleas for more exemptions to the corporate sector. It cannot be contended that the corporate sector is burdened with high taxes. It is my intention to review the exemptions periodically and ensure that the corporate sector pays its share of taxes.
29. Shri Sandip Dikshit wanted to know about the contribution of the Banking Cash Transaction Tax (BCTT). As I have said, the BCTT continues to be a valuable tool to track unaccounted monies and trace their source and destination. I have innumerable examples to support my argument. Further, I have exempted Central and State Governments from the scope of BCTT and have raised the limit for individuals and HUFs from Rs.25,000 to Rs.50,000. Honourable Members will kindly remember that Rs.50,000 is the withdrawal limit per day per current account. Savings accounts are exempt. I would like to ask, respectfully, how many individuals or HUFs withdraw more than Rs.50,000 per day per current account? Anyway, I have promised to review BCTT next year when other instruments in place to track unaccounted monies become effective.
30. Shri Roopchand Pal asked why we have not been able to revise the DTAA with Mauritius. This is not only a legacy issue, it is a delicate issue and has political and diplomatic implications. With the assistance of the Ministry of External Affairs, we are addressing the issue and we think that we can find a reasonable solution. Shri Roopchand Pal also asked me why I have not imposed tax on long term capital gains. There is a tax on long term capital gains on all assets other than listed securities. The rate is 20 per cent with indexation. It is only on listed securities that we have exempted long term capital gains if the security is held for more than one year. The reason is obvious: so long as the DTAA with Mauritius is in force, no purpose would be served in imposing a tax on long term capital gains arising out of securities transactions. It is in order to make up for the loss of revenue, I imposed the Securities Transactions Tax. It is a neat and efficient tax and has brought us reasonable revenues. For example, in 2006-07, the revenues under STT amounted to Rs.4,648 crore. Because the rate is moderate, and assessees, especially the day traders, have come to accept the tax as a reasonable tax, I expect the revenues under this head to grow in the future too. I increased the rates once in 2006-07 and it is not prudent to increase the rates once again this year.
31. Shri Roopchand Pal wanted to know about the collection of tax arrears. The record of the UPA Government in this respect is impressive. Under direct taxes, as against a collection out of arrear demand of Rs.5,540 crore in 2003-04, the collections in the next three years have been Rs.7,084 crore, Rs.8,064 crore and Rs.12,285 crore. Similarly, under indirect taxes, as against Rs.669 crore of arrears collected in 2003-04, the collections in the following three years have been Rs.2,642 crore, Rs.3,139 crore and Rs.3,466 crore. We shall continue to make stronger efforts to collect the tax arrears.
32. I shall now turn to indirect taxes.
33. Many Members referred to the lower growth rate in excise duties. This is true. The excise duty collections have not kept pace with the growth in the manufacturing sector. In the last three years, the rates of growth in excise revenues have been 8.1 per cent, 12.6 per cent and 5.9 per cent. I suspect the reasons are both tax evasion and tax exemption. I may add that actual collections of excise in 2006-07 fell short of the budgeted estimates by only 1.47 per cent. Beginning April 1, 2007, we have introduced mandatory e-payment of excise duty by assessees who have an annual excise liability of over Rs.50 lakhs. We are also strengthening the DGCEI and increasing audit of assessees. Many requests are received for lowering the rate of excise duty on specific goods. Tax exemptions, including area-based exemptions, have also played a part. Given this scenario, we have set a target growth rate of 10.09 per cent for 2007-08 over 2006-07 and we shall make every effort to achieve the target.
34. Shri Sandip Dikshit referred to drip irrigation and sprinkler irrigation systems as well as to pan masala. I have reduced the customs duty on drip and sprinkler irrigation systems from 7.5 per cent to 5 per cent. There is no excise duty on these systems. On pan masala, against the mean CENVAT rate of 16 per cent, pan masala with tobacco continues to attract an excise duty of 66 per cent. It is only in the case of pan masala not containing tobacco – which includes mouth fresheners – responding to suggestions, I had reduced the rate to 45 per cent which is still nearly three times the mean CENVAT rate.
35. Shri Harin Pathak raised the issue of service tax. Service tax was first introduced in 1994-95. It is true that, as on date, 100 services have been brought under service tax. Of this, three services were added during the period 1994 to 1996; 12 services were added during the period 1996 to 1998; 47 services were added during the period 1998 to 2004; and 44 services have been added by the UPA Government, but six services have been compressed into one. There is nothing unusual about 100 services being brought under the tax net. The services sector accounts for 56 per cent of the GDP. Service tax is a value added tax. Just as excise duty is a tax on value addition on goods, service tax is a tax on value addition by rendering services. The word ’service’ has to be understood in this context. It is used in contra-distinction to ’goods’. Although services account for 56 per cent of GDP, service tax contributed only 7.92 per cent of the total tax collections in 2006-07. Service tax revenues will grow in the future. Further, Honourable Members may keep in mind that we are moving towards a Goods and Services Tax with effect from April 1, 2010. GST will fall on all goods and services, and I hope that the exceptions, if any, will be very few.
36. Honourable Members – particularly, Smt. Kiran Maheshwari – may recall that there was no threshold exemption until 2004-05. It was only with effect from 1.4.2005, I introduced a threshold exemption of Rs.400,000. This year, I have increased the exemption limit to Rs.8 lakh. As a result, two lakh service providers have gone out of the tax net.
37. Renting is also an activity that goes into the calculation of GDP. It is a value added service. It is liable to service tax. That is the universal practice. We have introduced service tax only in respect of renting of large commercial properties. Small shops and establishments are exempt because of the enhanced threshold exemption of Rs.8 lakhs for the service provider, i.e., the landlord in this case. Residential properties are exempt. Exemptions have also been granted for properties used for education and religious purposes and land used for sports and entertainment. Of course, service tax would have to be paid in respect of large shopping malls or commercial complexes, but the service tax paid can be set off as input credit against service tax or excise duty payable.
38. Shri Roopchand Pal wanted to know about total expenditure. RE of Plan expenditure in 2006-07 is Rs.1,72,730 crore. RE of non-plan expenditure is Rs.408,907 crore. While the final figures will be available only by the end of this month, I am informed that the total expenditure would be very close to the Revised Estimates. He also wanted to know about the number of income tax officers leaving the service prematurely. I am informed that since June 2004, 103 Group ’A’ officers out of a total number of 4,150 have left the service. We have recruited on an average about 65 Group ’A’ officers every year in the last five years to the Income Tax Department. Hence, there is no cause for alarm. I may add that about 80 per cent of those who left service are promotee officers who prefer to leave the service rather than be subject to transfer to a place outside the zone in which they were originally recruited.
39. Shri Khagan Das sought some clarifications on allocations to the North Eastern Region. The budget allocation has indeed been increased from Rs.12,041 crore in 2006-07 to Rs.14,365 crore in 2007-08. As Honourable Members are aware, any amount out of the 10 per cent of the budget allocation to a Ministry/Department which remains unspent will go into a non-lapsable account and will be made available to the Ministry of DONER. That is what has been done for 2007-08 too.
40. Going beyond the Finance Bill, several Members made valuable interventions on the question of inflation. Government admits that there has been a rise in prices, especially in essential commodities. While the WPI is around 6 per cent, the inflation rate in the primary articles group is 12.36 per cent. I understand that a separate discussion is scheduled to take place next week on the issue of inflation. While I shall respond in detail during that discussion, let me take this opportunity to briefly list the causes behind the present inflation. I also wish to place the present inflation in context. Broadly speaking, there are five reasons behind the present inflation:
(i) Firstly, the worldwide increase in commodity prices, including crude oil. In particular, metal prices have hardened year on year by about 11 per cent;
(ii) Secondly, the supply-demand mismatch in essential articles. It started with sugar, then extended to wheat and then, while sugar prices eased, the mismatch extended to pulses. The supply-demand mismatch can be attributed to the stagnation in production over the last ten years of wheat, paddy and pulses. The only durable answer is to increase the production of wheat, paddy and pulses and, in the meantime, augment supply through imports wherever possible;
(iii) Thirdly, public expenditure has been on the rise, and justifiably so, in view of the flagship programmes and the NCMP commitment to increase expenditure in the social sector including education and health. Such expenditure increases demand. We have also increased the procurement price of paddy and wheat substantially in order that our farmers get remunerative prices. These decisions, while justified on sound economic grounds, also have an inflationary effect;
(iv) Fourthly, the higher rate of growth of GDP has stimulated higher demand for goods and services. This is reflected in high growth of credit as well as in the fact that many industries are working at near full capacity, for example, cement. As a result, pricing power has returned to manufacturers and sellers;
(iv) Fifthly, the large capital inflows, namely, FDI, FII, remittances, private equity, external commercial borrowing, export earnings etc have increased the money supply beyond the normative level.
41. There are three instruments to moderate inflation: fiscal policy, monetary policy and supply-side measures. On fiscal policy, Honourable Members are aware that we have reduced customs duties and excise duties on a large number of goods of mass consumption. Wheat and pulses are on OGL at zero customs duty. Customs duties on edible oils have been sharply cut. Customs duties have also been cut on raw materials used by industry.
42. On the monetary policy side, the Reserve Bank of India has taken a number of measures to moderate demand and credit growth. The CRR has been increased in six steps from 5 per cent to 6.5 per cent. Risk weights have been increased for several sectors including housing, commercial real estate, capital market and NBFCs. RBI is also operating the LAF as well as the market stabilisation scheme.
43. On supply side measures, I understand that the Minister of Agriculture has, while replying to the Demands for Grants, explained the measures taken by Government to augment production and productivity of essential food articles, especially food grains and pulses. As far as the Ministry of Finance is concerned, we have not hesitated to provide funds for import of food articles. Vast amounts of money have also been provided for agriculture and irrigation. The Budget for 2007-08 has given a new thrust to agriculture. I request Honourable Members to kindly refer to paragraph 43 to 64 of my Budget Speech. It is our belief that the measures taken by the Government will bear fruit in the near future.
44. I also wish to place the present inflation in context. Average inflation in 2006-07 was 5.4 per cent. In Government’s view, this is high, and requires to be contained below 4.5 per cent. However, I may point out that average inflation in 1998-99 was 5.9 per cent; in 2000-01, it was 7.2 per cent; and in 2003-04, it was 5.5 per cent. In those years, the peak rate touched 7.3 per cent, 8.8 per cent and 6.9 per cent respectively. I may remind the Members that in the year 2000-01, inflation was over 6 per cent for 48 weeks and over 8 per cent for 12 weeks. Nevertheless, inflation was moderated thereafter. I am confident that the current inflation which has been around 6 per cent since January, 2007 will be moderated due to a combination of supply side, monetary and fiscal measures taken by the Government and the Reserve Bank of India.
45. I shall now deal with suggestions received from different quarters for changes in the tax proposals. Many Honourable Members have also referred to these matters.
46. Firstly, on indirect taxes. The export duty on iron ores was imposed with the twin objective of conserving minerals and raising some revenue. Iron ore fetches very high prices in the world market. Prices rose in 2006-07 by about 19 per cent and in April, 2007-08, prices have risen by another 9.5 per cent. The export duty on iron ore lumps has been welcomed by all sections. Some representations have been received on export duty on iron ore fines, especially fines with low Fe content. After extensive consultations, I propose to reduce the export duty on iron ore fines of Fe content 62 per cent and below to Rs.50 per tonne. On iron ore fines with Fe content above 62 per cent and on iron ore lumps, the duty will remain at Rs.300 per tonne.
47. Nickel prices have risen substantially over the last one year and touched US$50,000 per MT in April, 2007. Nickel is not available within India. It is an important input for steel industry. Hence, I propose to reduce the customs duty on Nickel from 5 per cent to 2 per cent.
48. N-paraffin is a basic feedstock for manufacture of chemicals like LAB. Bringing it in line with other feedstock, I propose to reduce the customs duty on N-paraffin from 10 per cent to 7.5 per cent.
49. Refrigerated motor vehicles will be required for transportation of perishable agricultural products. I therefore propose to reduce the customs duty on such vehicles from 10 per cent to zero and the excise duty/CVD from 16 per cent to 8 per cent.
50. I had reduced the customs duty on cut and polished diamonds from 5 per cent to 3 per cent. The Gems and Jewellery industry has represented that the duty should be at zero per cent in line with other countries. Ministry of Commerce has supported this proposal. Accordingly, the duty will be reduced to zero per cent. However, if we find that the decision adversely affects the import of uncut diamonds or adversely affects employment in the cutting and polishing industry, we shall immediately review the decision. It is our intention to preserve, nurture and expand the cutting and polishing industry in India.
51. Soya bari is a nutritious food supplement. Ready to eat packaged food are also becoming popular. These two items alone attract 8 per cent excise duty. All other food mixes have been exempted from excise duty. Hence, I propose to exempt soya bari and all ready to eat packaged food from excise duty. In the Budget Speech, I had proposed to exempt from excise duty biscuits whose retail sale price does not exceed Rs.50 per kg. In response to representations, I propose to exempt biscuits whose retail sale price does not exceed Rs.100 per kg.
52. I had exempted water purification devices based on specified membrane technologies from excise duty. Bhaba Atomic Research Centre has requested that this exemption should be extended to water purification equipment based on polysuplhone membranes on the ground that this technology is also equally effective. I propose to accept the suggestion and exempt such equipment from excise duty.
53. Cement prices continue to be high and are causing hardship to consumers. The cement industry did not respond positively to the dual excise duty regime. Hence, Government reduced the import duty to zero and removed CVD as well. The dual specific rates of duty have not brought the desired results and, hence, there is no point in continuing with the same. Therefore, after careful consideration, it has been decided to replace the dual rates on cement. The concessional specific duty of Rs.350 per MT for cement sold in retail at not more than Rs.190 per bag (of 50 kgs) will continue. In respect of cement sold at a price of more than Rs.190 per bag, an ad valorem duty at 12 per cent of the Retail Sales Price will be levied. Honourable Members are aware that the ad valorem levy is the normal way of levying excise duty. The result will be that the concession granted to cement sold at Rs.190 or less will continue. For cement sold at a higher price, the ad valorem rate will apply, and there will be an effective reduction of up to Rs.7 per bag on the excise duty liability. It is my expectation that the cement industry will respond positively to the changes announced now and reduce the price of cement.
54. Honourable Members are aware that I proposed an increase in the excise duty on biris which was last revised in 2001. The increase was Rs.4 per thousand for non-machine made biris. In response to representation received from the industry and a number of Honourable Members, I propose to cut this by one-half. Accordingly, the increase will be from Rs.7 to Rs.9 per thousand for non-machine made biris. The basic exemption from excise duty for unbranded biris up to 20 lakh biris in a year will continue. On machine made biris, the increase will be for Rs.22 to Rs.26 per thousand, as against the budget proposal to raise it to Rs.29 per thousand.
55. Zip fasteners are an important input in textile and leather garments. Zip fasteners come into the country at zero customs duty under various export promotion schemes. Domestic producers and some Honourable Members have represented against the excise duty of 16 per cent. Accepting these representations, I propose to reduce the excise duty from 16 per cent to 8 per cent.
56. Honourable Members are aware that I had proposed to levy customs duty, CVD and additional customs duty on import of aircraft excluding imports by Government and scheduled airlines. Ministry of Civil Aviation has made a strong representation in favour of exemption for aircraft imported for training purposes by flying clubs and institutes and for non-scheduled point-to-point and non-scheduled charter operators under conditions of registration to be specified and recommended by that Ministry. Since civil aviation is a nascent and growing industry, it has been decided to accept this request and exempt these categories also from the duties.
57. I now turn to direct taxes. In the Finance Bill, I had restricted the pass through status to venture capital funds making investments in eight sectors. There has been a request that this concession should be extended to the infrastructure sectors as well. Accordingly, the concession will be extended to investments made by venture capital funds in the infrastructure facilities listed in the Explanation to Section 80IA(4)(i).
58. Representations have been received regarding Clause 10 of the Finance Bill which amends Section 17 of the Income Tax Act. Shri Roopchand Pal also made a reference to this in his speech and hoped that I would respond favourably. I intend to give relief. There is a history to Section 17 of the Act. Since 1987-88, rent-free or concessional rent accommodation was taxed at 10 per cent of salary or the fair market rent, whichever was less, minus the rent actually paid. In 2001-02, the concept of fair market rent was dropped and the value of the concessional accommodation was taken as 7.5 per cent or 10 per cent of salary, depending upon population, minus the actual rent paid. This provision was challenged in various High Courts and the High Courts upheld the provision. Some employees appealed to the Supreme Court. Pending the appeals, in financial year 2005-06, the value of the concessional accommodation was revised to 15 per cent or 20 per cent, as the case may be, depending upon the population. There was no complaint against that proposal which was approved by Parliament. In a recent judgement, the Supreme Court disposed of the appeals, upholding the validity of the provision. However, the Supreme Court has ruled that, in the absence of a deeming provision, the fact of a concession would have to be proved in each case before the rate of 15 per cent or 20 per cent is applied to that case. The Supreme Court decision is not adverse to the Government and, in fact, indicates that the way out would be to insert a deeming provision. If the judgement were to be applied to each case, it would mean considerable inconvenience to the assessee and long drawn out proceedings. Hence, it was decided to insert a deeming provision through Clause 10 of the Finance Bill. The amendment proposed in the Finance Bill is therefore perfectly in order. However, I have received a number of representations complaining about the rate of 20 per cent. Being responsive to suggestions and in order to give relief, I have reviewed the rate to be applied for putting a value on the concessional accommodation. I have decided that the rate shall be reduced from 20 per cent to 15 per cent if the population is above 25 lakhs; to 10 per cent if the population is between 10 lakhs and 25 lakhs; and to 7.5 per cent if the population is below 10 lakhs. Thus, every employee will get substantial relief. I also propose to give retrospective effect to the reduction from financial year 2005-06, which is the year when the 20 per cent rate was introduced.
59. Representations have been received against taxing Esops as a fringe benefit. Worldwide, Esops are subject to tax. What we have done is no different, except that we have levied the tax on the employer who may, by agreement with the employee or by making a provision in the Scheme, recover the tax from the employee. Hence, the tax will stay. However, I propose to give some relief. The fair market value of the Esop for the purpose of taxation will be reckoned on the date of vesting of the option and not the date of allotment or transfer of the shares. The liability to tax will be attracted on the date of allotment or transfer of the shares and the period of holding of the Esop shall also be reckoned from the date of such allotment or transfer.
60. Some official amendments are also being introduced to give effect to certain Budget announcements such as the new North East Industrial Policy; tax neutral status for amalgamation and demerger of cooperative banks; and extending the tax benefit under Section 80C of the Income Tax Act for investment in NABARD rural bonds.