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Major tax reforms in next Budget
FM ready to relook at transaction tax rate
Tribune News Service

New Delhi, July 12
Amidst mounting pressure from the stock-broking community, Finance Minister P.Chidambaram today promised to have a ‘‘relook’’ at the transaction tax rate of 0.15 per cent.

The Finance Minister also promised to bring about comprehensive tax reforms in the next Budget, in line with the recommendations of the Kelkar Task Force.

The Task Force, which is different from the Kelkar Committee, is expected to submit its report in the next couple of days.

‘‘I will consider the recommendations and implement them in the next Budget, which is only seven months away’’, he said adding that ‘‘none of successors had even attempted to tinker with the tax slabs of 10, 20 and 30 per cent’’. Mr Chidambaram had introduced these slabs during his earlier stint as Finance Minister in the erstwhile United Front government.

‘‘If compliance improves we can take a relook after some time’’, he said.

The 2004-05 Budget, he said, was primarily in response to the ‘‘complex electoral mandate’’ arising out of ‘‘deep anguish’’ in rural India.

The stock-broking community had given a thumbs-down to the proposal of transaction tax at the rate of 0.15 per cent with markets plummeting as soon as the Finance Minister made his announcement during the Budget speech.

Mr Chidambaram is scheduled to meet representatives of capital markets and stock brokers tomorrow to discuss the issue.

‘‘We must admit that transaction tax is efficient, neat, non-regressionary, eliminates tax avoidance and everybody contributes to the exchequer. If anybody has a better set of numbers other than 0, 10 and 0.15 per cent, we would be willing consider’’, Mr Chidambaram told industry captains at an interactive session organised by FICCI here.

The Finance Minister said the decision to impose a transaction tax of 0.15 per cent was taken after due consultations with the stock-broking community.

‘‘We decided on three rates -- 0 per cent for long-term capital gains, 10 per cent for short-term capital gains and 0.15 per cent transaction tax’’, he said.

Mr Chidambaram said the government had made the judgement that ‘‘complex capital gains tax regime was distorting the market and encouraging avoidance. The transaction tax would be beneficial in the long run’’.

‘‘I think the issue has got more attention than it deserves’’, he said.

The hike in the FDI ceiling of telecom, civil aviation and insurance has also drawn some amount of political flak with the Left parties saying that the Finance Minister has made announcements which should not have been necessarily part of the annual Budget.

While the FDI cap on telecom is proposed to be increased to 74 per cent from the existing 49 per cent, that of insurance will be increased from 26 per cent to 49 per cent. Similarly for civil aviation the FDI ceiling has been fixed at 49 per cent from the existing 40 per cent.

Mr Chidambaram said in telecom the FDI ceiling was already 74 per cent albeit in a non-transparent manner.

‘‘What is so far allowed in a non-transparent manner is now being proposed to be allowed in a transparent manner’’, he said.

He said there are four primary FDI caps — zero, 26 per cent, 51 per cent and 74 per cent and are significant in terms of management and operational control.

‘‘If airports can have 49 per cent FDI, why can’t civil aviation have it’’, he said.

For insurance, he said the cap has been raised to 49 per cent, a long pending demand of the industry, keeping in mind the massive capital requirements of the industry.

‘‘It has been a demand of the private insurance companies because they want more capital. This is one industry where long term savings are made’’, he said.

‘‘And there is hardly any difference between 40 and 49 per cent. There are important numbers like 0, 26, 51 and 74, which have special meaning, but it does not matter whether you raise from 40 to 49 per cent’’, he added.

The domestic industry should support this ‘‘not on ideological grounds but in terms of pure financial accounting, company and business’’, he added.
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