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Finance Minister moots withdrawal of NOR status and exemption on interest on ECB

The Lok Sabha adopted by voice vote the Finance Bill, the first of the Bharatiya Janata Party-led 18-party coalition government, giving effect to the taxation proposals during the current financial year.

Replying to the three-day debate, Finance Minister Yashwant Sinha announced concessions amounting to Rs 2.63 billion. The indirect tax concessions involve a tax loss of Rs 1.93 billion on account of excise and Rs 710 million in customs.

He also assured the House that all efforts would be made to achieve revenue target for 1998-99, keeping the fiscal deficit at 5.3 per cent and keeping prices under control. He said the main reason for inflation was the galloping fiscal deficit.

Sinha said the government would not succumb to any international blackmail and assured that the government had enough resources to ensure that no project suffered due to sanctions.

In the area of direct taxes, an important measure related to restoring the exemption to the Not Ordinary Resident category and also in respect of interest paid on external commercial borrowings. Explaining this step, Sinha said the Finance Bill has proposed to withdraw the status of ''NOR''. It was also proposed to withdraw the exemption available in respect of interest paid on external commercial borrowings.

The provisions relating to NOR had lived for long on the statute. A resident Indian going abroad and acquiring the status of a Non-Resident for a few years continued to enjoy the benefit of exemption of foreign income even after being a resident for nine years.

The Finance Minister said it has been represented to him that these proposals would adversely affect the government's effort to encourage investments from NRIs in India. The burden of taxes in respect of external commercial borrowings would eventually be passed on to the Indian corporate sector, he said.

He said the government will begin its disinvestment plan from September onward. The target of Rs 50 billion would be achieved easily as the economy has been showing signs of recovery.

He said the foreign financial institutions, which have unloading in the stock exchanges since November last, had restricted their selling operation as was evident from the fact that net outflow was much lower in June from the May level. Even in the current month, there was virtually no net outflow.

The government has decided to sell shares of five profit-making public sector companies.

He said the government had taken several steps to attract foreign investment and no major changes have been made so far.

He said the reason why duties had been lowered on items like whisky was because of India's committment to the World Trade Organisation. He asked members to judge the Budget proposals in their proper perspective.

Referring to the criticism by former finance minister P Chidambaram, Sinha said he would not have been able to do better on the price and fiscal deficit front.

Sinha said the government was taking various steps to bring down prices and said what was required was a sound analysis of the nature of inflation.

He said the government was making efforts to control the money supply. The growth of money supply last year was more than 17 per cent, which was very high. The rise in inflationary trend since September last was mainly due to the higher money supply allowed by the previous United Front government, he alleged.

He further attributed that the main cause of inflation to the lack of discipline and control on the fiscal front and reminded that the fiscal deficit left by the previous government was 6.1 per cent as against the intended limit of 4.5 per cent.

He said the country has a heterogenous tax structure. The imposition of special additional duty of four per cent should not be construed as a swadeshi measure. This had been imposed to countervail the effect of local taxes such as sales tax.

He said the government would give time to industry to enable it to face global competition. The issue regarding insurance was being examined by the government which will clarify its stand on private and foreign participation in the insurance sector at the time of announcement relating to the Insurance Regulatory Authority.

Sinha said the situation on the sugar front was being watched carefully. He said corrective measures will be taken as and when required.

He said the charge that he had tried to distort the tax structure was far from true. He restored the exemption on external commercial borrowings, including nine-year exemption on contributions from Non-Resident Indians. He also withdrew the proposed tax on gifts.

He informed the House that the educational institutions and medical institutions would continue to enjoy tax exemptions. He also restored tax benefits to research institutions.

On indirect taxes, he said he will stand by his commitment to follow the WTO stipulations on customs duty collection. Already duty on many items including consumables were only moderate, he added.

As indicated earlier, the finance minister fixed the special additional duty of customs on industrial imports at four per cent to offer a level playing field to Indian industry, mainly to mitigate the disability on account of central sales tax. He explained that the higher duty rate proposed in the Budget was not necessary due to the depreciation of the rupee value.

Sinha said he had kept away from enhancing the excise duty struc ture. He announced to withdraw the duty he proposed on milk products, skim milk powder, sweets and savouries, branded spices and spectacle lenses (except costly frames).

The proposed 13 per cent duty on medical furniture has been reduced to eight per cent. Packaged tea above 100 grams would attract eight per cent as the companies were reaping huge profits on marketed tea.

The minister announced that tea packed in packages upto 100 grams will enjoy exemption from excise duty. Tea packed in packages above 100 grams and upto 20 kilograms will attract excise duty at eight per cent. He said this would give relief to a cross-section of tea consumers in the lower- and middle-classes.

Marble slabs of above Rs 400 square metres would attract Rs 30 to Rs 40 duty now. He also announced certain duty concessions on glazed newsprint, medicines for fighting AIDS and textiles, especially for those used in 100 per cent export units.

The minister also withdrew the customs duty on parallel marketed kerosene as it would adversely hit smaller manufacturing units.

The duty burden on aluminium scrap which is energy-saving has been reduced.

The customs duty on carbon black feed stock and methanol has been reduced by five per cent ad valorem in each case.

In order to reduce the cost of production of paper and newsprint, the finance exempted waste paper imported by actual users from the special duty of customs.

The proposals relating to changes in excise and customs duty will be given effect from Saturday.

In his proposals, he had raised the excise duty on marble slabs and tiles from Rs 30 to Rs 40 per square metre. He now proposed to confine the higher rate only to slabs and tiles of value above Rs 400 per square metre.

Sinha announced some additional concessions to the textiles industry, a core sector. He raised the duty free exemption from shoody blankets from Rs 100 to Rs 150 per square metre. Fabrics produced in 100 per cent export units from indigenous raw materials and sold for domestic consumption will henceforth be charged excise duty at the nominal excise rate and not at the rate related to customs duty on imported fabrics. He also reduced the rate of compounded levy of embroidered fabrics from Rs 60 to Rs 45 per metre length of the machine per shift.

Some of the highlights of the Finance Bill are as follows: withdrawal of the service tax on tour operators for the next two years, leading to revenue loss of Rs 200 million per year; restoration of the exemption from basic customs duty on glazed newsprint; exemption of four specified drugs for AIDS treatment from customs duty, kerosene oil from custom duty, if used by lab manufacturers.

Further, the proposals relating to excise duties are estimated to result in a revenue loss of Rs 1.92 billion in one year. The customs duty changes estimated to result in a revenue loss of Rs 710 million in a year.

Sinha said the application of one of the nine criteria would increase the total number of people who file their income tax returns by 50 per cent in next three years: 1. certain provisions proposed for housing sector have been modified;
2. tax holidays benefit also extended to trunk services;
3. all educational and medical institutions, which are financed and managed by government, will continue to enjoy the benefit of exemption. The limit of other category of institutions for exemption was fixed at those whose receipts that do not exceed Rs 10 million;
4. withdrawal of the proposal to calculate capital gains on the basis of circle rates of stamp duty;
5. a committee would be set up to examine the issue of business re-organisation in entirety and recommendations would be examined before the next Budget;
6. certain category of persons including agriculturists and foreign tourists have been exempted from the provision of Permanent Account Number for certain transactions;
7. the limit for transactions in shares have been raised to Rs 1 million from Rs 50,000;
8. modification of proposals relating to infrastructure capital funds; and
9. tour operators exempted from service tax for a period of two years in view of Visit India Festival next year.

Senior citizens have been exempted for filing tax returns on having a telephone.

UNI