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Chidambaram cuts duties, but firm on imposing service tax

Finance Minister P Chidambaram on Wednesday gave major reliefs to the common man reducing duties on matches, sanitary towels, baby napkins, corduroy cloth, fruit juice drinks and umbrellas entailing a loss of Rs 1.11 billion to the exchequer. He however remained firm on widening the tax net through the service tax levy which will come into operation after hearing representations from the industry concerned.

Bowing to pressure from major political parties, Chidambaram made a major deviation from his earlier proposals and gave additional budgetary support for the power sector totalling Rs 9 billion. As much as Rs 7 billion has been set aside to speed up projects of the National Hydroelectric Corporation, the Tehri Power Corporation and the Damodar Valley Corporation.

A further Rs 2 billion will be provided as budgetary support for the Power Finance Corporation for funding renovation and modernisation of power plants run by state electricity boards.

According to Chidambaram, the two initiatives would expedite the commissioning of about 6,000 MW of power over the next two or three years.

Chidambaram outlined a series of measures for improving tax compliance, accelerating industrial growth and increasing revenue.

With support from the Congress party, the Bharatiya Janata Party and the Left Front, Chidambaram said he has been able to evolve a consensus Budget.

Broadly, the strategy has been to bring in legislative measures to charge excise duty on the basis of production capacity for goods prone to evasion.

The finance minister said he intended to allow weighted deduction on both capital as well as revenue expenditure for inhouse research incurred by private companies.

Manufacturers of colour picture tubes will benefit from a further reduction in custom duty on glass shells from 20 per cent to 10 per cent.

Chidambaram said he would notify an alternative scheme under which small scale industries will be able to avail of modvat while paying concessional excise duty.

Excise duties on soft drinks made from fruit juice has been reduced from 18 per cent to eight per cent. Fruit pulp-based non-alcoholic beverages will also attract eight per cent duty.

Items such as sanitary towels, napkins for babies and similar sanitary articles will be cheaper as excise duty on them has been reduced from 13 per cent to eight per cent.

Electrical items produced with hand-operated moulding machines will also become cheaper as excise duty has been reduced from 18 to 13 per cent.

Chidambaram also made two special announcements as a part of the golden jubilee celebrations of the country's Independence.

The minister said a special concession of 15 per cent on khadi products would be available to consumers throughout the golden jubilee year, beginning from August 15, 1997 to 1998.

A special provision of Rs 27 million has been made for the National Museum at Jallianwala Bagh, Amritsar, he said, adding the special gesture has been made at the instance of Prime Minister I K Gujral.

The other concessions include: bonds and shares issued by public financial institutions will be eligible for tax concessions under section 88; catalytic converters and their parts will attract a nominal custom duty of five per cent; and custom duty on specified raw materials for manufacture of medical syringes and needles has been reduced to 10 per cent.

He said Rs 630 billion will be provided to the public sector, adding that it must perform and show good returns as it was the hard-earned money of the Indian tax-payer.

Chidambaram also announced that a bill to accord statutory status to the Insurance Regulatory Authority would come before the House.

The finance minister announced significant changes in the Voluntary Disclosure of Income and Wealth Scheme, 1997.

Moving the finance bill, the minister said that the scheme will be allowed only under the Income Tax Act, 1961.

He said there will be no liability of payment of wealth tax, if any, arising out of disclosed income for the past period and any liability to wealth tax will be only prospective.

These changes in the proposed scheme will make it more attractive as no wealth tax will be paid retrospectively. However, there is no change in rate of tax.

The scheme has also been renamed and will be called Voluntary Disclosure of Income Scheme, 1997.

The finance minister also called upon the industry to borrow and invest. Admitting that the industrial production had shown some sluggishness, he gave figures to demonstrate that there was an industrial slowdown. However, in the wake of the Budget, there have been several notable gains including declining of inflation rate from 7.78 to 6.54 per cent despite the political uncertainty, he added.

He said foreign exchange reserves increased from $ 19.7 billion on February 29, 1997 to $ 22.7 billion on May 6, 1997.

UNI