Vajpayee Government – The Last Budget

If we pose the question is India shining? The answer in the beginning of 2004 will have to be Yes.

The Government of India has announced several decisions on the direct tax and indirect tax front just before the vote on account or interim budget as the case may turnout to be. While the direct tax decisions will be implemented soon and would come into effect from April 1, 2004, the amendments on the service taxes have already come into effect. Moreover the changes in excise and customs rates have been notified and have come into effect from 9-1-2004.

A) DIRECT TAXES

Direct Taxes procedures simplified. New procedures to come into effect from April 1, 2004.

With a view to further simplify the procedures under Direct taxes, Government has decided to amend the Rules and issue necessary notifications in respect of the following:

No filing of returns for employees having salary income upto Rs.1,50,000.00, in whose cases the entire tax payable is deducted at source by the employer. Salary certificate furnished by employer to the Income Tax Department will now be considered as IT return. Pensioners to be exempt from the purview of one-by-six scheme, thereby exempting pensioners who do not have taxable income, from the hassle of filing returns.

With respect to valuation of perks, housing loan interest rates etc., to be reduced, to bring them in line with the prevailing market rates. Instead of separate certificates to several deductors, there will be just one certificate from the Assessing Officer for no tax deduction at source (TDS) in case of tax-exempt entities such as trusts etc. Infrastructure projects to be granted one time approval for purpose of exemption under section 10(23G) to do away with the current system of seeking periodical renewals.

The new provisions will be effected from the first day of FY 04-05. Several administrative steps are also proposed for bringing about a taxpayer friendly regime. These are:

Furnishing of paperless income-tax returns by introduction of direct filing through internet under digital signatures for salaried taxpayers, professionals like doctors, accountants etc.

Expansion of computer network to cover all 501 Income-tax Offices in the country by June 2004.

Number of challan forms for payment of TDS will be reduced from four to one.

B) INDIRECT TAXES

Indirect Taxes – Some Changes

Government has decided to make no of changes, which have come into effect from January 9, 2004 in the rates of indirect taxes. Salient features are:

I. Overall Duty Structure (Customs)

1. Peak rate of customs duty on non-agricultural goods has been cut from 25% to 20%.
2. Special Additional Duty of customs (SAD) of 4% is being removed.
3. Customs duty on project imports with investment of at least Rs. 5 crores, in plant and machinery, is being reduced from 25% to 10%.
4. Customs duty on coal is being reduced from 25% to 15%.
5. Customs duty on nickel and articles thereof is being brought down by half to 5%.

II. Power sector

1. Customs duty on power transmission and distribution projects is being reduced from 25% to 10%.
2. Customs duty on electricity meters will now be 15% instead of 25%.

III. Information Technology (IT) / Electronics

1. Inline with our WTO commitments detailed in the Information Technology Agreement (ITA) bound items the customs tariff are being reduced.

2. Customs duty on cellphones is being reduced from 10% to 5%.

3. Excise duty on computers is being reduced from 16% to 8%.

4. Recorded video compact discs (VCDs) and digital video discs (DVDs) are being exempted from excise duty.

5. Customs duty on specified raw materials/inputs used for manufacture of electronic components or optical fibres / cables is being cut from 15% / 5% to 5% / Nil.

6. Customs duty on specified capital goods used for manufacture of electronic goods is being reduced from 15% / 10% to Nil.

7. Specified infrastructure equipment for basic/cellular/internet, V-SAT, radio paging and public mobile radio trunked services and parts of such equipments are being exempted from basic customs duty.

IV. Health

1. Customs duty on specified life saving bulk drugs, formulations, medical equipments to go down to 5%. Countervailing duty (CVD) on these items is also being abolished.

2. Customs duty on parts of artificial limbs and specified rehabilitation aids is being reduced to 5%. These items are also being exempted from CVD by way of excise duty exemption.

3. Excise duty on medical, surgical, dental and veterinary furniture is being halved from 16% to 8%.

4. Mosquito nets treated with pesticide are being exempted from excise duty.

V. Civil Aviation – A boon for Travel and Tourism

1. Excise duty on Aviation Turbine Fuel (ATF) is being reduced from 16% to 8%.

2. Inland Air Travel Tax (IATT) of 15% is being abolished.

3. Foreign Travel Tax (FTT) of Rs. 500 per passenger is being abolished.

VI. Water Supply

1. Exemption from customs and excise duties available to water supply projects for drinking purposes is being extended to water supply projects for industrial as well as agricultural purposes.

VII. Trade Facilitation Measures

1. 24 x 7 electronic filing of customs documents for clearance of goods, presently available in 9 customs formations, is being extended to 23 customs formations.

2. Customs clearances will be based on self-assessment and selective examination.

3. Baggage rules are being relaxed:

Duty on 6 items (namely VCD/VCR, washing machines, personal computers, laptop computers, refrigerators of capacity upto 300 L, and cooking range) under Transfer of Residence are being made duty free.

Duty on 17 items under Transfer of Residence is being reduced from 30% to 15%. Import of cinematographic films, exposed but not developed, imported as part of baggage, is being made duty free.

Quantity of alcoholic liquor/wines allowed duty free under baggage is being increased from 1 litre to 2 litres.

Laptops brought as part of baggage are being exempted from customs duty.

4. Manufacturers will now be allowed to remove semi-finished goods and finished goods for further processing or testing, without payment of excise duty.

5. Electronic filing of service tax returns, currently available only in respect of 10 services, is being extended to all the 58 taxable services.

6. Service providers providing more than one taxable service will be allowed to take single registration and file a single return.

7. Only a simple verification will now be made for grant of registration for service tax

Final Cut:

It will be fare to state that the Finance Minister has done a fine job by giving the nation a well-deserved New Year gift. Jaissi has done it in his unique and heart to imitate style. This is probably the best way to say Happy New Election Year. While the pre-election budget looks like a menu full of concessions with PCs, Cell phones, Electronic Goods, some pharma products, Air Travel all this to cost less. Surely a voter friendly setoff measures. Inspite of all the hype it is not hard for a serious budget analyst to take stock of some significant shortcomings in the schemes proposed by the FM. An investigation of the pre-election budget reveals that for the first time a FM has come up with a budget which only outlines items of expenditure. With the custom and Excise duty concessions likely to cost the government an estimated Rs.12,000.00 Cr. The FM has given us no ideas about how the government will raise the required revenue. The proposed Rs. 50,000.00 Cr. Infrastructure fund also appears to be a concept of futility without much utility. Remember the last time Jaissi came up with his budget, wherein he proposed a Rs. 60,000.00 public-private partnership initiative on infrastructure. Now will this partnership which never took off be dissolved. On the Dada-Dadi Bonds our only question is what happens to the Varishta Bima Yojana launched by LIC last year? Moreover it is difficult to appreciate the logic of producing these announcements in installments. However it can be said in defence of Jaissi that the job of the government is to govern and key economic policy decisions cannot be postponed to serve the election agenda. The prior discussed setoff measures are likely to convert the feel good factor into a deal good environment.

With reforms on track and polls on the anvil, if we pose the question is India shining? The answer in the beginning of 2004 will have to be Yes.