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Finance Minister Yashwant Sinha's Budget Speech (June 1, 1998) Part B Budget Speech Part-B 89. Sir, I now present my tax proposals. 90. There has been much talk of a tough budget. The temptation to raise taxes in the given situation was indeed great. But I recognise that direct tax policy must impart stability and confidence both to individuals and corporates. Therefore, any uncertainty in this regard must be ended. Tax rates introduced last year are moderate enough. I do not propose to introduce any changes in the rate structure either for individual or corporate taxes. I do hope that long-term stability in tax structure would create virtuous circles of increased productivity, voluntary compliance and enhance our tax widening efforts. In fact, I am going to announce a couple of concessions. Considering the difficulties experienced by the tax payers at the marginal level, the level for tax exemption is being raised from the existing limit of Rs.40,000 to Rs.50,000. 91. Salary earners having income upto Rs.1 lakh will be further pleased to know that I propose to raise the ceiling of standard deduction in their case from Rs.20,000 to Rs.25,000. Their pleasure, I hope, will be happily shared by those salary earners whose income is more than Rs.5 lakhs. They will henceforth not be entitled to this deduction. For salary earners having income between Rs.1 lakh and Rs.5 lakhs, no change is proposed in the existing position. I also propose to enhance the ceiling of tax-free reimbursement of medical expenses from Rs.10,000 to Rs.15,000. 92. In a country of our size, it is a matter of great anxiety that the total number of assessees constitutes less than 1.25% of our population. The scope for tax widening remains the single most formidable challenge in the area of direct taxes. It is well accepted tenet of taxation policy that moderate rates of taxes only make sense if the net is wide and the scope of evasion progressively minimised. Towards this objective, I propose to take some important initiatives. Last year, a scheme was introduced to cover 12 important cities where if you fulfil two of the four criteria, namely, possession of a house, subscription to a telephone, spending on foreign travel and possession of a motor vehicle, you would be obliged to file an income-tax return. This scheme had several lacunae which I propose to remove. In the first instance, the scheme is being extended now to cover 23 more cities in India taking the total coverage to 35 cities. The net itself is being enlarged to include two additional criteria, namely, holding a credit card and membership of expensive clubs, taking the total parameters to six. Finally, the matching of two out of four parameters apart from being an administratively onerous task provided an escape route to many potential assessees. I believe that if any one fulfils one of the six criteria, it would be reasonable to ask the individual to file his income-tax return. It could thereafter be determined whether he is liable for payment of taxes or not. This revised "One-by-Six", as the scheme would now be known, is a significant initiative in our tax widening efforts and it is my intention to raise the total number of individuals filing their income-tax returns by at least 50 percent during a full fiscal year. 93. Coupled with tax widening, tax evasion continues to be a serious handicap. While efforts at enforcement would be strengthened, I propose to undertake a new initiative in making it obligatory for assessees to quote their PAN or GIR number mandatorily in respect of certain high value transactions. These transactions would be :- Purchase & Sale of immovable property With increased usage of computerisation, this data will be fully utilised for increasing the tax-base and for preventing the leakage of revenue. 94. We must recognise that the cumbersome nature of our income tax forms coupled with complex procedures is a serious deterrent to an honest individual in becoming an assessee. I, therefore, propose to introduce, for the first time, a simple one page taxpayer-friendly return form to be hereinafter called, ‘SARAL’, applicable to all non-corporate taxpayers. SARAL can be filled up easily without the aid of Chartered Accountants or Tax Advisors. The ‘SARAL’, I hope, would become popular enough, through voluntary compliance and the assistance of NGOs, which I propose to muster, along with mobile vans for important cities, can be widely distributed and collected easily on spot. This will, apart from contributing to our tax widening effort, also make an important psychological difference in the mindset of potential tax assessees. 95. Litigation has been the bane of both direct and indirect taxes. A lot of energy of the Revenue Department is being frittered in pursuing large number of litigations pending at different levels for long periods of time. Considerable revenue also gets locked up in such disputes. Declogging the system will not only incentivise honest taxpayers, enable government to realise its reasonable dues much earlier but coupled with administrative measures, would also make the system more user-friendly. I, therefore, propose to introduce a new scheme called "SAMADHAN". The scheme would apply to both direct taxes and indirect taxes and offer waiver of interest, penalty and immunity from prosecution on payment of arrears of direct tax at the current rates. In respect of indirect tax, where in recent years the adjustment of rates has been very sharp, an abatement of 50 per cent of the duty would be available alongwith waiver of interest, penalty and immunity from prosecution. 96. Legal measures are also being proposed to limit and expedite litigation. These include enhanced scale of fees for filing appeals before the Appellate Commissioner and the Income Tax Appellate Tribunal, abolition of the level of Deputy Commissioner (Appeals), provision of direct appeals to High Courts to reduce delay, and also extension of the scope of the Authority for Advance Ruling to notified categories of resident tax payers. 97. Moderate rates and large concessions do not go hand in hand. I have, therefore, carried out a review of the various concessions and exemptions under the Income-tax Act. I find that many of them are no longer necessary and some of them are also being used for tax avoidance. I, therefore, propose to withdraw many of these provisions. These include exemption to the Export Import Bank of India and exemption in respect of certain perquisites of foreigners employed in India. The blanket exemption in respect of educational and medical institutions which is being misused, is proposed to be withdrawn, compelling such institutions to come under a discipline. However, safeguards are being provided to ensure that the institutions genuinely serving the social cause in either field do not lose the existing benefits. 98. I also propose to plug certain loopholes. Rule 5(a) of the First Schedule to the Income-tax Act relating to computation of profit of insurance business other than life insurance business is being amended to prevent leakage of revenue. Similarly, section 10(23G) of that Act is being recast to serve the objective of infrastructure financing without misuse of the concession. Under the existing provisions, there is no mechanism to ensure that the tax free funds raised by an infrastructure enterprise are actually used for infrastructure development within a reasonable time and are not used for any other purpose. I propose to provide such a mechanism. 99. Gift-tax has been levied in India since 1958. The revenue yield from this tax has been insignificant. Last year we collected barely Rs.9 crore. The Gift-tax Act has also not been successful as an instrument to curb tax evasion and avoidance. I, therefore, propose to discontinue the levy of gift- tax on gifts made after 30th September, 1998. At the same time, to ensure that there are no leakages of income-tax revenue through the mechanism of gifts, I propose to tax the gifts under the Income-tax Act itself in the hands of the recipients. However, the gifts from non-residents including NRIs through banking channels will continue to enjoy exemption as at present. 100. I have already said that housing is an area which requires our utmost attention. Therefore, I propose several incentives to encourage house-building activity. These include :- Tax holiday for approved housing projects - 100 per cent
deduction from profits for first five years and 30 per cent deduction for subsequent five
years. 101. Other areas in the social sector for which new tax incentives are proposed or the existing ones being increased include employment generation, improvement of environment, upliftment of women, road safety, cooperatives and medical expenses of the handicapped. 102. I propose to allow a new deduction to companies with a view to encourage them to employ additional work force. An amount equal to 30 per cent of additional wages paid to the new workmen will be allowed as a deduction against profits, subject to certain conditions. 103. For improvement of environment, I propose to allow 100 percent deduction, subject to a ceiling of Rs.5 lakhs, to undertakings engaged in the collection or processing of biodegradable waste. I also propose to make activities which encourage the production of bacteria induced fertilisers eligible for 100 per cent deduction under section 35AC of the Income-tax Act. Necessary amendment in the rules will be notified for this purpose. Similar benefit is proposed to be extended to the activities of establishing and running of educational institutions, hospitals and medical facilities in rural areas exclusively for women and children and also creches and schools for the children of workers employed in factories or at project sites. I also propose similar amendment of rules to make activities which promote road safety and traffic awareness and prevent accidents eligible for 100 per cent deduction under section 35AC. 104. The promotion of sports and games in the country needs to be encouraged. I propose setting up of National Sports Fund and further propose that donations made to the Fund will be eligible for 100 per cent deduction. 105. I propose to extend 100% tax holiday granted to industrial undertakings located in any industrially backward State or district till the year 2000. I also propose similar extension of tax holiday to power sector upto the year 2003 and also to new refineries set up after 1st October, 1998. I also propose to extend infrastructure status to inland waterways and inland ports. 106. I further propose tax holiday benefits to radio paging services and services provided by satellite owners for telecommunication. 107. I also propose several measures in response to demands from business and industry. Certain categories of business reorganisations are proposed to be freed from any additional tax liability or loss of tax benefits keeping in view the necessity of such reorganisation consequent on economic liberalisation. No capital gain would be charged and the benefit of carry-forward of losses and unabsorbed depreciation would be allowed in case of specified reorganisations. Intangible assets are proposed to be allowed depreciation at the rate of 25 per cent. Provisions for amortisation of preliminary expenses are proposed to be liberalised. The period of amortisation is proposed to be reduced from 10 years to 5 years and the rate of deduction will consequently be doubled. Stock lending is proposed to be exempted from capital gains. 108. Delay in refund of excess tax collected tantamounts to denial of justice. It is a source of constant harassment, particularly of small tax payers. I intend to mitigate this difficulty by effecting an amendment in section 192 of the Income-tax Act which will enable adjustment of loss from house property against salary income, at the source itself. This, I believe, will eliminate a large number of refund claims. 109. In response to demands from tax payers, I propose to take further measures. Under the existing provisions of section 44AA of the Income-tax Act, every person carrying on business or profession is required to maintain account books, if his income from business exceeds Rs.40,000 or his total turnover exceeds Rs.5 lakhs. Considering the increased cost of engaging accountants, I propose to enhance these limits to Rs.1,20,000 and Rs.10 lakhs respectively. I further propose that the penalty leviable at the minimum rate of Rs.100 per day for failure to furnish certificates of tax deduction or collection at source under section 203 or to deliver copies of declarations under section 197A, shall not exceed the amount of tax deductible or collectible, as the case may be. Presently, there is no such ceiling on the quantum of penalty leviable which causes hardship, particularly to small businessmen. 110. Certain demands of the film industry have also engaged my attention and I propose to give relief to them. Under the existing rules, if a film is released on commercial basis at least 180 days before the end of the previous year, full amortisation of the cost incurred on production or acquisition of distribution rights of the film is allowed in the year of release itself whereas if the film is released later, full amortisation is not allowed in that year. Considering that nowadays film producers and distributors release a large number of prints simultaneously to counter the threat of video-pirates and cable television, resulting in shorter life span for exploitation of films, I propose to reduce the aforesaid period of 180 days to 90 days. This will enable the film industry to quickly recoup the cost of film production and distribution. I also propose that producers of films, who are required to furnish information in respect of all payments over Rs.5,000 to the Income-tax Department in any financial year would have to do so now only in respect of payments over Rs.25,000. I hope these measures would inspire the film industry to make better and healthier films. 111. A controversy has arisen recently regarding the deductibility of payments by way of extortion money. To set the controversy at rest, I propose to explicitly provide retrospectively since the inception of Income-tax Act, 1961 that any money paid by way of extortion will not qualify for deduction as a business expense. As further rationalisation measure, I propose to make certain amendments with regard to block assessment procedure and treatment of MODVAT credit in the valuation of inventories and capital assets. 112. The limit of room rent in hotels for the purpose of attracting expenditure tax is proposed to be increased from Rs.1200 to Rs.2000 per day. 113. Taxpayers all over the world have a sense of pride in discharging their legitimate dues to the government and the society recognises the important contribution they are making in enabling the State to discharge its responsibilities. In this country, regrettably, the culture of pride by honest taxpayer and a social recognition of his important role has yet to evolve. We must make a change in this mindset. Towards this objective, I propose to introduce a scheme called "SAMMAN" to demonstrate the society’s recognition of their important contribution to the national cause. The details of the facilities and recognition to be conferred on the taxpayers and PAN holders would be separately announced. 114. I hope the above measures alongwith SARAL, SAMMAN and SAMADHAN will go a long way in making our efforts to increase the tax payers compliance a success. But while we are doing what we can, I call upon the people of India to do their patriotic duty by the country and honestly pay their taxes. 115. Before I move on to indirect tax, I would like to state that a large number of suggestions were received from all sections of tax payers and I have got them carefully examined. It is not practicable to acknowledge all these communications individually. I do so now collectively and am extremely thankful to the tax payers for their valuable suggestions. 116. Hon’ble Members would see from the budget documents that the figure projected by way of revenue realisation from direct taxes is Rs.48,855 crore which is higher than the figure indicated in the interim budget. This is after taking into account the revenue loss of Rs.950 crore, worked out on a mechanical basis, arising out of certain proposals for reliefs and concessions placed before the House. We intend to make this loss up and collect the budgeted amount through improved collection of arrears, continuation of the tax base enlargement efforts, rigorous enforcement and tightening measures reflected in the budget proposals.
Tax Proposals - B 117. Mr. Speaker, Sir, our medium-term objective is to enhance the tax-GDP ratio. As far as customs duties are concerned the process of restructuring has resulted in a progressive reduction in tariffs, with a view to align these with internationally acceptable levels, and the broadbanding of rates. These measures have enhanced the competitveness of Indian industry. 118. On the excise side, until a few years ago the regime was characterised by a multiplicity of rates and punctuated with numerous ad hoc exemptions. As a result, the tax structure was opaque. It is the objective of the present proposals to introduce greater transparency in the system through a significant rationalisation of rates. The ultimate objective of this process is to move towards a Central Value-Added Tax (VAT) system which can then be merged with a generalised VAT. It is our intention to move in this broad direction. 119. The domestic industry has responded favourably to the restructuring of customs duties and has shown commendable resilience. They need to improve their competitive efficiency to meet the challenges of global competition. But they also have legitimate concerns which cannot be ignored. In this background, the path of transition has to be carefully calibrated to ensure that the adjustment process for the Indian industry is orderly without leading to serious disruption. 120. I have received representations from a cross section of the industry about the regime of import duties. Many Honorable Members have also written to me expressing their concern on the general health of the domestic industry. The demands are diverse and asymmetrical in most cases. This is for obvious reasons. While the users of imported raw materials and other inputs or the consumers of finished imported goods would benefit from further reduction in import duties, the domestic producers have made a convincing case for urgent relief to the domestic industry. 121. I have given my earnest consideration to these concerns and the competing claims. I am persuaded about a clear disability that our commodity taxation inflicts on the indigenous goods vis-a-vis the imported goods. While the former are subjected to sales tax and other local taxes and levies, the import sector escapes them by their very nature. In order to provide a level playing-field to the domestic industry, I propose to impose an additional non-modvatable levy of 8% on imports which is approximately equal to the burden of local taxes on domestic producers. This duty should not be viewed as a protectionist measure but only as a response to a legitimate demand for a level playing field. The new levy would not apply to crude oil, newsprint, capital goods sector under a special tariff regime or goods which are subjected to additional duties of excise in lieu of sales tax, gold and silver imported by passengers or other nominated agencies and life saving drugs that are free from customs duties. The levy would also not apply to goods which are currently exempt both from basic and additional duties of customs. Similarly, goods imported for subsequent trading have also been left out of its purview, since they bear the burden of Sales tax at the time of first sale. The new levy will also not apply to inputs imported under export-promotion schemes. In addition, there may be other sectors eligible for exemptions. These would be examined and if considered appropriate notified separately. 122. The gradual reduction of import duties in the past few years has resulted in certain distortions and anomalies. My proposals seek to correct them as far as found feasible without causing abrupt disruption in the duty structure. 123. The steel industry has shown considerable resilience in the past to withstand gradual reduction in customs duties. Last year, however, the steel industry has not shown any appreciable growth. I propose to increase the customs duty on cold rolled coils of iron and steel from 25% to 30%. I also propose to reduce the duty on stainless steel melting scrap from 10% to 5% and on refractory ceramic goods from 40% to 30%. I am confident that these changes alongwith the imposition of the special additional duty that I have proposed on the imports in general would provide adequate relief to the steel industry. 124. The duty on wrought copper is being raised from 30% to 35%. 125. I do not intend to make any other changes in the duty structure applicable to ferrous and non-ferrous metals. 126. Textile intermediates like DMT, PTA, MEG attract customs duty at 25%. However, caprolactum which is the raw material for making nylon yarn is subjected to a higher duty of 30% . I am reducing the duty on caprolactum also to the level of 25% so that all the major textile intermediates attract the same rate of duty. The import duty on paraxylene, an important input for synthetic fibres and yarn, is being reduced from a total of 15% to 5%. 127. The decentralised sector of the textile industry generates avenues for employment. It deserves to be encouraged by reducing cost. I propose to reduce customs duty on apparel grade raw wool from a total of 25% to 20%. The duty on wool waste and garnetted stock of wool is also being reduced by the same extent. I also propose to reduce the duty on acetate and cuprammoniun filament yarn from 30% to 20%. In the same vein, machinery required for viscose filament yarn and woollen industry is being accorded the concessional duty of 10% 128. The import of paper and paper board has shown phenomenal growth in terms of quantity. In order to improve the competitiveness of the domestic producers, I propose to increase the customs duty on paper and paper board from 20% to 30%. 129. Mr. Speaker, Sir, my government values the right to information. With a view to further strengthen this right, I propose to reduce customs duty on standard newsprint from 10% to 5%. I also propose to rationalise the duty structure by subjecting glazed newsprint to the same rate of duty. Furthermore, I also intend to exempt newsprint from the applicability of 8% across the board special additional duty. 130. I also propose to reduce the duty on light weight coated paper weighing upto 51 grams per square metre for printing of magazines to a total of 5%. 131. The customs duty on photographic chemicals is being raised from 25% to 30%. Similarly, the duty on citric acid is being increased from 30% to 40%. 132. I propose to reduce the customs duty on jumbo rolls of cinematographic film from 25% to10%. 133. Motor vehicle parts are generally subjected to customs duty at 40%. However, I.C. engines and parts thereof for motor vehicles attract a lower rate of 20%. I propose to raise the customs duty thereon to 30%. 134. I propose to reduce the duty on industrial diamonds from 30% to 20%. This would help the diamond cutting tool industry. 135. As a measure of rationalisation, I propose to reduce the duty on rayon-grade wood pulp from 10% to 5%. 136. Thalassaemia is a life-threatening blood-disorder. There have been requests for exempting maltol, an input used in the manufacture of drugs for the treatment of this disorder. I propose to fully exempt maltol from customs duty. Hydroxy ethyl starch and dextran are used in the manufacture of artificial plasma which is free from import duty. I propose to reduce the burden of duty on artificial plasma by reducing the duty on hydroxy ethyl strach and dextran from 30% to 5%. I also propose to exempt Lamivudine, which is used for the treatment of AIDS, from customs duty. 137. Leather industry contributes significantly to our export effort. In order to encourage its export, I propose to reduce the duty on specified machinery for leather industry from 20% to 5%. This would also be the rate applicable to leather splitting machinery. I also propose to reduce the duty on saddle trees from 30% to 10%. 138. Sir, the House is aware that India has joined the Information Technology Agreement. We are committed to abolish the import duty on products of information technology. This is not because we are bound by the ITA but because we are convinced that spread of information technology and freer exchange of information is the key to success and human welfare. I propose to reduce the duty on floppy disk drives, hard disk drives and CD-ROM drives from a total of 12% to 5%. The duty on ICs of value exceeding one thousand rupees per piece is also being reduced to 5%. I also propose to reduce the duty on computer parts excluding PPCB from a total of 15% to 12%. The duty on PPCB is being reduced from a total of 25% to 22%. I also propose to reduce the duty on cathode ray tubes for colour monitors for computers from a total of 15% to 5% and on deflection components for colour monitors for computers from a total of 25% to 5%. My proposals also include reduction in duty on telecom software from 40% to 30%. Such software henceforth will not be subject to any additional duty of customs. 139. In order to encourage the domestic telecom equipment sector, I propose to reduce the duty on parts of such equipment to 20%. 140. As a measure of environmental protection, I propose to reduce the import duty on sawn wood and certain other varieties of wood from 30% to 25%. I also propose to reduce the duty on biopesticides, which are eco-friendly , from 30% to 5%. With the same objective, I have proposed reduction of duty on membrane electrolysers and parts from 25% to 10%. 141. The duty on spodumene, which is an energy saving material, is being reduced from 25% to 10%. On silicon, which is widely used in solar energy applications, I propose to reduce the duty to half of the existing 10%. I propose to reduce the duty on - Solar cells and modules from 30% to 20% 142. Mr. Speaker Sir, good roads are a necessity for social and economic development. I am sure that those of us who are privileged to afford personalised vehicles can afford to contribute to the faster development of good roads in the country. I propose to charge an additional tax at the rate of rupee one per litre on petrol with immediate effect. This is expected to generate an amount of Rs.790 crore in a year which will be used for the development of roads and entirely go towards augmenting the corpus of the National Highways Authority of India. I propose to extend the concessions presently available to import of equipment for construction of National Highways to other road-construction projects also. 143. The importers of precious yellow metal can certainly afford to contribute a bit more to the national exchequer. I propose to increase the import duty on gold from 220 rupees per ten grams to 250 rupees per ten grams. 144. The duty free allowance for baggage is Rs.6000 at present. Many countries do not impose any such restrictions. While we may not follow them there is need to increase the present limit to reduce delays in clearance of passengers. I propose to increase the baggage allowance from Rs.6000 to Rs.12000 for passengers returning to India after a stay exceeding three days. I also propose to extend free allowance of Rs.3000 to Indian residents returning from Nepal, Bhutan, Myanmar or China by air, after a stay exceeding three days. 145. There are a number of items on which it is necessary to reduce the customs duties marginally on account of GATT binding. I do not wish to take the time of the House in going into the details. 146. The government is committed to provide a tax code which is consistent with dismantling of administered pricing mechanism of petroleum products in a phased manner. By the year 2001, the import duty on crude has to be reduced from the current level of 27% to not more than 5%. The import duty on down stream products like furnace oil, LSHS, HSD oil, motor spirit and ATF has also to be reduced to the level of 10% to 15%. In this process, we will ensure an effective protection not exceeding 20% for downstream industry by suitable differential and calibration of import duty structure. 147. I have initiated the process of implementing the decisions arising from the dismantling of administered pricing mechanism. I propose to reduce the customs duty on crude from a total of 27% to 22%. This is estimated to result in a revenue loss of Rs.965 crore in a year. In order to recoup the loss, I propose to increase the excise duty on motor spirit from 20% to 35%. I also propose to impose customs duty on kerosene imported for parallel marketing at 32%, including special duty of 2%. 148. I now come to my proposals on central excise. 149. Mr. Speaker, Sir, the contribution of the small scale sector in the economy cannot be over emphasised. It is a critical fast track for generating employment thus promising support to thousands of families. The predecessor governments have been sympathetic to the small scale sector but I am afraid they have not done enough to encourage them so as to exploit their full potential. The fiscal incentives provided to the small scale sector have been rather meagre for a number of years. 150. I have taken certain important steps in this direction. I propose to raise the exemption limit for excise purpose from Rs.30 lakhs to Rs.50 lakhs, an increase of about 65%. The clearances between Rs.50 lakhs to Rs.100 lakhs shall be charged to a flat nominal rate of 5%. These proposals would result in a revenue loss of Rs.300 crore in a year. This is a small price to pay to restore to health this vital sector of our economy. 151. Over the years the scheme of Modvat credit has been considerably liberalised. However, the amount of Modvat credit availed has grown unexpectedly fast in recent years, suggesting misuse of the Modvat credit scheme in the absence of a comprehensive computer net work for cross-checking modvatable invoices from a-flung ranges. Until such a computer network becomes functional, and as a transitional measure, I propose to restrict the availability of Modvat credit by 5% of the duty paid in the case of inputs used in the manufacture of excisable goods. However, no restriction is placed on the Modvat credit in respect of capital goods. 152. My proposals regarding other changes in excise duty are guided by the overall need to rationalise the rate-structure so as to reduce the multiplicity of rates and ensure convergence towards a mean rate of 18% ad valorem. An ideal tax structure would be one where, barring the mean rate, there is one lower rate for items deserving concession and a higher rate for what may be described as demerit goods. This would minimise the oscillations in rates and call for compression of intermediate rates. 153. As a first step towards a convergence to the mean rate, I propose to impose excise duty of 8% on certain commodities. These include : Packaged tea 154. I also propose to charge excise duty on exempted articles of plastics at a flat rate of 5% on clearances in excess of Rs.1 crore in a financial year. 155. In the same spirit, I propose to increase the excise duty on medical instruments and appliances as also on pollution control equipment from 5% to 8%. 156. A good number of commodities are subject to excise duty at 8%. Some of them can bear a higher duty. I , therefore, propose to increase the excise duty on these commodities to 13%. 157. As a result, malt, certain types of cartons, medical furniture, sun glasses and unrecorded audio cassettes will henceforth be subjected to duty at 13%. 158. As a measure of rationalisation, I propose to increase the duty on arms and ammunition from 18% to 25%. I, however, assure the House that arms and ammunition for the military services will continue to be exempt from excise duty. 159. I propose to raise the duty on multi-utility vehicles from 25% to 30% and on solid or cushion tyres also from 25% to 30%. 160. I also propose to raise the duty on marble tiles from Rs.30 to Rs.40 per square metre. 161. My proposals also include reduction of excise duty on: Effluent treatment plants from 13% to 8% 162. I propose to exempt 100% wood-free particle boards and fibre boards made from agro-based residues from excise duty. Henceforth, cement bonded particle board, jute particle board, rice husk board, glass fibre reinforced gypsum board, sisal fibre board and bagasse board will also be free from excise duty. I also propose to exempt blocks and bricks containing more than 25% fly ash, ready mixed concrete, jute blankets and jute felt from excise duty. Henceforth, pultruded jute articles shall also be free from excise duty. 163. I propose to exempt recorded audio cassettes from excise duty. I also propose to exempt recorded video cassettes intended for television broadcasting from excise duty. The exemption for computer software will now be broad-banded to cover all software. 164. The domestic nylon industry is stagnating for various reasons. I propose to reduce the duty on nylon filament yarn from 30% to 25%. 165. Finance Ministers are often criticised by the tax payers for their compulsive habit to increase the burden of taxes. However, such complaint cannot be justified by compulsive smokers. I propose to increase the excise duty on cigarettes by varying degrees ranging from 6% to 11% of the specific rates. 166. I have no intention of being harsh on smokers all the way. Accordingly, I propose to reduce excise duty on matches manufactured in the cottage sector by half from Rs.0.50 to Rs.0.25 per hundred boxes. A smaller reduction is also being made in respect of matches manufactured by other sectors. 167. High rates of duties are known to induce evasion and avoidance. I propose to reduce the excise duty on alcohol-based toilet preparations from 100% to 50%. I expect that this will improve compliance and States will get more revenue. 168. The Maximum Retail Price (MRP) based excise levy introduced last year in respect of certain products has been welcomed by the industry. This scheme provides for simplification and certainty in taxation. I propose to extend this scheme to a few more commodities, such as chocolates, malted food preparations, glazed tiles, razor blades, radio sets, domestic electrical appliances and pan masala. 169. In the last budget, a number of services were added in the tax net. These included the service rendered on transportation of goods by road. The House is aware that it led to wide spread resistance and protests. As a result, this service tax was virtually kept in abeyance and rightly so. I have decided to abolish the service tax on transportation of goods by road. I have also decided to abolish the service tax payable by outdoor caterers and pandal contractors. However, I have proposed service tax on some new services. These are services provided by : Architects We will examine how in respect of certain segments liable to Service Tax, the manner and mode of payment could be further simplified to improve compliance. These new service taxes will yield Rs.220 crore in a full year. 170. My proposals relating to customs duties are estimated to result in a net gain of Rs.3,304 crore in one year. In case of excise duties, my proposals are estimated to result in gain of Rs.5,009 crore. 171. Mr. Speaker, Sir, there can be no two opinions that we must increase the level of voluntary compliance and our tax procedures should be simple, transparent and hassle free. Our tax laws are yet to achieve this objective even though considerable efforts have been made in the past. 172. Our laws are not in tune with the need of the times. It is imperative that they should be rebuilt on a comprehensive basis and modified to make them truly modern. I am conscious that it is not an easy task. But it is also not impossible. I have decided to set up an Expert Group to recast the central excise law. It will be my Government’s endeavour to bring a new excise law before Parliament in the next budget session of this House. 173. The government have also decided to set up a Settlement Commission for settlement of certain categories of disputes relating to customs and excise duties. The details of the scheme are contained in the Finance Bill. I also propose to set up an authority for Advance Tax Rulings for Excise and Customs in view of the need for foreign investors to be assured in advance of their likely indirect tax liability. A bill to this effect will be introduced in Parliament in due course of time. 174. Mr. Speaker, Sir, with our courage, determination and conviction, we freed ourselves from the British Raj more than fifty years ago. This year the nation takes pride in celebrating the 50th year of Independence. Our trade and industry, however, is still not free from another Raj, namely, the Inspector Raj. We are committed to put an end to this in the shortest possible time. I am of the view that we owe it to our taxpayers to provide a competent, efficient, sensitive and responsive tax administration. Indeed, it is long overdue. 175. There is a widespread feeling that the operation and implementation of excise laws leads to harassment of the assessees. We are earnestly desirous of bringing about systemic changes to remedy the situation. Some of the more important measures that are proposed, are: Minimising the contact points between the
officials and assessees 176. I am conscious of the fact that there is strong resentment against the procedures and legal obligations relating to service tax. I have removed a number of obnoxious and deterrent provisions in law. I also propose to abolish several of the redundant and irritating central excise rules very shortly. 177. On the customs side, I have decided to strengthen the initiatives already taken in the form of Fast Track Clearance Systems and the Self-Assessment System in import clearance. Computerisation in both Customs and Central Excise departments will be completed expeditiously so that information can be obtained from the assessees and the importers and exporters through electronic media thereby reducing contact between the assessees and the department. 178. I am introducing a new culture of time-bound action by officials of the Customs and Central Excise department. A Citizens’ Charter is being released shortly to lay down the citizen’s rights and the obligations cast on the customs and excise officials. 179. Copies of notifications giving effect to the above changes in customs and excise duties will be laid on the Table of the House in due course. 180. Finally, I have something to say on behalf of my Hon’ble colleague, the Minister of Communications. Postal service is highly employment-intensive and salary and allowances constitute a major part of the operating expenses of the postal department. A revision of tariff for postal services has become unavoidable. However, in the interest of the common man and the role of the print media in a democracy, there will be no change in the tariff for postcard and registered newspapers. However, the rate of competition postcard is being raised from Rs.2 to Rs.3, Inland letter from Re.1 to Rs.1.50, letter from Rs.2 to Rs.3 for every 20 gms. or part thereof and parcels from Rs.8 to Rs.10 for every 500 gms. or part thereof. There are also certain other changes which are explained in the Memorandum circulated along with the budget documents. The changes would take effect from a date to be notified after the Finance Bill is passed. The revisions proposed are estimated to yield an additional revenue of about Rs.270 crore in a full year and about Rs.180 crore in 1998-99. Even this modest increase, which is necessary for sustaining postal development, will only partially meet the cost of postal services leaving an uncovered postal deficit of about Rs.695 crore. 181. As a result of my tax proposals and the postal tariff revision, total expenditure of the Central government for the year 1998-99 would be marginally reduced to Rs.2,67,927 crore while the net revenue receipts and non-debt capital receipts would increase to Rs.1,76,902 crore. The revenue deficit is placed at Rs.48,068 crore which is 3% of GDP. The fiscal deficit is placed at Rs.91,025 crore which is 5.6% of GDP. With the present state of the economy and in view of the need for expenditure stimulus to growth, I believe further compression is not warranted this year. 182. Sir, it is my firm conviction that in the days to come India will stand tall on the world’s stage because of our commitment to democracy and the pursuit of prosperity. I call upon you to join us to strengthen freedom and opportunity, I call upon you to join us to build a better future for every man, woman and child. As we move together and with discipline, the future is ours. In the words of Ramdhari Singh Dinkar : Rise O’ warrior march ahead undaunted 183. Mr. Speaker, Sir, with these words, I commend the budget to this august House.
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