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FM INTERVIEW
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‘Our constituency is much larger than the industry’ The constituency we are addressing is a much larger constituency vis-a-vis the industry. It is the rural constituency comprising women, students, self-help groups (SHGs), micro-finance institutions (MFIs) and small and medium enterprises (SMEs) that we are looking at. According to my feedback, all these are happy with the Budget. Students are happy as more loans will be given, farmers are happy that more credit will flow and SHGs are happy with the big boost that they have got. By and large we have addressed their problems.
As far as the services’ sector is concerned, they should be happy we have maintained the rate and taken 80% of service tax payers out of the tax net. If you look at industry some specific sectors have been singled out for special attention like textiles and sugar. These have suffered a bit and require a helping hand.
But isn’t industry unhappy? Particularly about the tax on fringe benefits?
If you take the tax package as a whole, I would say industry is generally happy with the Budget. Yes it has pointed out two areas of concern as far as fringe benefits are concerned - one yesterday and one today. But if you read the scheme clearly you will see we are talking only of fringe benefits that are related to employment as against fringe benefits given as legitimate business expenditure. Legitimate business expenditure will not be taxed. But today there are many benefits given to employees that do not qualify to be taxed as perquisites. We need to tax these. It will be entirely in accordance with international practice. There is a lot of literature on accounting standards for calculating CTC (cost to company) and we will apply internationally accepted standards to calculate CTC.
Isn’t it important to encourage benefits like the superannuation fund in a country where there is virtually no social security other than government officials?
I can’t answer questions about specific fringe benefits. The broad principle is that legitimate business expenditure will not be taxed. If it is a fringe benefit collectively enjoyed by employees and not by one specific employee then it will be taxed at the hands of the employer.
What about abolition of standard deduction? Surely it leads to inequitable treatment of the salaried vis-a-vis the non-salaried class?
The standard threshold exemption has been raised to Rs 1 lakh. Salaried persons also get large number of benefits in the form of allowances from the employer. Rs 1 lakh is thrice the per capita income of the country and subsumes all exemptions. Along with this we have given exemption on savings up to Rs 1 lakh. Once we have done this we must remove the mess of standard deduction, section 88 and section 88L. If we don’t, then what is tax reform all about?
Can you explain the rationale of the changes you have made in the treatment of depreciation. Doesn’t it militate against more rapid capital formation?
Our calculations show that the accruals remain the same when we apply the old and new regime of taxation as well as old and new tax rates. The internal accrual remains the same and is equal to the cost of replacing machinery. We have done our bit and a new investor will definitely benefit.
You were quite emphatic that the tax changes for the oil sector would be revenue neutral. But then why are the oil companies talking of raising prices?
My statement was quite clear. I said based on the current (as on February 28) global oil prices and on current quantities we import, the old and the new regime both are revenue neutral. This has been discussed across the table with the petroleum ministry. If they are revenue neutral to me there should be no change in prices. Of course, if international prices change the oil companies will go with proposed price changes to the cabinet committee on economic affairs (CCEA).
You have estimated an additional resource mobilisation of Rs 6,000 crore from direct taxes. Can you tell us from where you hope to raise this money?
We have applied the new rate of taxes to the current situation and made projections. That is the way the department always works. On three out of five taxes we are bang on target. And the two shortfalls can be explained. One is because oil companies and banks have not paid enough as they’ve taken a hit. The second reason is that we cut excise duties twice last year. A part of this money will come from fringe benefit tax, improvement in tax collection because of the tax information network, annual information returns and also with lower tax slabs compliance will improve. I set the bar high and ask the departments to meet collection targets. If they fall short by Rs 1,000 crore or so, so be it.
When do you expect the EET regime to come into operation? Will that also be retrospective?
We have introduced the EET principle for newly recruited government employees. A committee will be appointed to go into the gamut of saving schemes and tax regimes that will apply and they will submit their recommendations to us. We will take a decision after that.
Is it not better to come up with a negative list of services rather than to keep expanding the list like this?
A negative list is possible for goods not services because every taxable service has to be defined carefully because it contemplates a service provider, a service receiver, and a place of service, which does not apply in the case of goods like cars, scooters etc. All three aspects need to be defined in the case of service tax.
How much of tax arrears have you collected in the last year?
All I can say is we have collected a tidy sum. The Rs 15,000 crore you are talking about relates to collectible arrears but there are stay orders and other complications to be considered.
What about the BCTT? Isn't that a retrograde step?
There are huge cash withdrawals taking place every day and we need to find a way to stem and track these cash withdrawals. We have thought of one way as discussed in the CPP meeting today. I am open to other ways as long as it does not compromise my objective. The intention is not to tax but to track. We can’t exempt corporates from this as shell companies indulge in such kind of withdrawals. This move will not discourage banking but will rather encourage banking and the cheque culture.
Your Budget speech is silent on FDI in insurance. Why?
I have already announced my view on FDI in insurance last budget which will be incorporated in the draft bill that will be prepared. As far as the RBI roadmap to FDI in banks is concerned it is a very reasonable and acceptable proposition even though there are two views on this. One camp thinks it is too conservative while the other thinks it is too radical.
The difference in tax rates between foreign and Indian companies has increased. Does it not go against the logic of foreign direct investment?
Foreign companies have been left untouched by corporate tax changes as there is no clamour for any change there. but this does not mean that we can’t do it in the near future. A foreign company which distributes dividends in India is a domestic company. There are hardly any foreign companies which don’t have PEs and distribute dividends.
What is the nominal GDP growth you have estimated? Isn’t there a worsening of the quality of fical deficit?
The nominal GDP growth rate is 12% in my view. If GDP growth is more buoyant then targets will be more easily achievable. We outline a budget to accommodate unexpected factors and yet achieve the targets. The quality of GDP matters but we follow revenue deficit to GDP ratio and fiscal deficit to GDP ratio as the standards to measure performance, as world over.
Will the money from disinvestment go into Consolidated Fund of India?
The National Investment Fund lies outside the ambit of the Budget. It does not give the finance ministry either revenue or capital receipts. We get no credit from the disinvestment proceeds. | ||
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